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August 1, 2006
Another Cara 100 (AET) hits the Accumulation zone, Tues., August 1, 2006, 11:42 AM
Growth in high cost medical claims at (Cara 100) Aetna Inc. has resulted in disappointing results and a lower share price. But, while estimates have been reduced, the stock is still Buy-rated by UBS. Download July 28 UBS Aetna report.
UBS dropped the 12-month price target on AET from $50 to $45. As for me, I'd be happy to get a $43 price.
At today's price of $31.03, the stock is a very conservative PE multiple of 10x on an est. 2007 EPS of $3.15.
The stock has clearly dropped into the Cara Accumulation one based on the Relative Strength Index (RSI 7) for Monthly/Weekly/Daily being 27.9/21.1/18.2.
I think the market reaction to the earnings release and guidance that came out before the market open on Thursday July 27 was far over-done. As this is a Bear market, the major funds were looking for a place to sell, and this was obviously the one.
And I think they are wrong.
If you carefully read this UBS report, plus compare the operating metrics for this company against its peer group over many years, you will likely see what I see, which is that Aetna is a quality company.
Aetna Inc. [GICS 35, Cara 100]
(AET: Yahoo Finance file)
(AET: StockChart chart)
(AET: Investertech chart)
(AET: ADVFN Financial Data)(AET: ADVFN Financial Data)
I really like business cycles and stock cycles because they lead to buying opportunities of the stocks of good quality companies. If you are patient, these stocks will come to you.
Posted by Posted by Bill Cara on August 1, 2006 11:42:26 AM | Category: 35 Health Care , Cara Global 100 Best Companies
Discourse
AET is in an industry I know quite well. As long as their is strong leadership at the top combined with a disciplined pricing strategy, high claims loss ratios can be overcome as soon as nine months (majority of renewals in January).
Posted by: cb ![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
August 1, 2006 12:11 PM [link]
Bill -
Even if you're right on AET, why "catch a falling knife"? Isn't it better to buy after it hits bottom, bases, and reverses?
Also, has Whole Foods (WFMI) fallen into its accumulation zone?
Jock
Thanks, Bill. I think the stock has established a support level @ above 30. Started buying @ 31.80.
Posted by: Ken at
August 1, 2006 12:56 PM [link]
PS: on AET, I sold Sep 30 puts (for .90) and bought Sep 25 puts (for .10) This capped my risk, while only slightly reducing premium income.
Given 1974, 1987,& 2000, I always try to guard against crashes, which Mandelbrot showed (in Misbehaving Markets) to be far more common than suggested by the "normal curve" which underlies MPT, VAR, and most Wall St. analysis.
Bill, I haven't heard you comment on such risk, and would be interested to know your views - especially given today's conditions.
Jock
Jock ... AET is not exactly a falling knife. It was six days days ago, however. When it comes to technical analysis the small details matter. Technical signals are often subtle and even more often misread. AET tested the 31.00 support level twice in the last six days. That's the beginning of a base. A falling knife is a stock price that depreciates significantly *before* finding a support level. True, AET may make another leg down, but it hasn't been a falling knife since 2 hours into the open on Jul 27.
http://stockcharts.com/h-sc/ui?s=$SPX&p=W&st=2002-10-01&id=p31962912054&a=80488445
http://stockcharts.com/h-sc/ui?s=$SPX&p=W&st=2002-10-01&id=p31605924012&a=80348618
Posted by: CalexKitty at
August 4, 2006 6:07 AM [link]
Calex-
Did you copy the wrong charts there or did I mis-read something?
Posted by: MarkM at
August 4, 2006 8:09 AM [link]
Thanks Bill, I started accumulating @30.98 ;)
Posted by: C.Note![[TypeKey Profile Page]](http://www.billcara.com/nav-commenters.gif)
at
August 1, 2006 11:58 AM [link]