{"id":41667,"date":"2013-09-04T05:51:53","date_gmt":"2013-09-04T09:51:53","guid":{"rendered":"http:\/\/countingpips.com\/forex-news\/?p=41667"},"modified":"2013-09-04T05:51:53","modified_gmt":"2013-09-04T09:51:53","slug":"a-rare-pricing-anomaly-in-the-healthcare-sector","status":"publish","type":"post","link":"https:\/\/www.investmacro.com\/forex-news\/2013\/09\/04\/a-rare-pricing-anomaly-in-the-healthcare-sector\/","title":{"rendered":"A Rare Pricing Anomaly in the Healthcare Sector"},"content":{"rendered":"

By WallStreetDaily.com<\/u><\/a> <\/p>\n

It\u2019s not like Wall Street to leave profits on the table. But they just did.<\/p>\n

And if you\u2019ll permit me to set the stage ever so briefly, I promise you\u2019ll be able to use their ignorance to your ultimate advantage and profit.<\/p>\n

You see, it\u2019s a fact of investing that when a major acquisition is announced \u2013 for example, Steve Ballmer\u2019s<\/a> decision to go out with a bang at Microsoft<\/b> (MSFT<\/a>) and buy struggling handset maker, Nokia<\/b> (NOK<\/a>), for $7.2 billion – the \u201csmart money\u201d quickly ferrets out the implications of the deal (i.e. – the price per share for the acquired company). Then they scoop up shares before us less-informed investors have a chance to get in. Hence, Nokia opened 40% higher yesterday.<\/p>\n

Likewise, when a company of Apple<\/b> (AAPL<\/a>) or Samsung\u2019s<\/b> (SSNLF<\/a>) size and influence launches a new product, investors flock to sites like IHS iSuppli, which tears apart the new product to identify the maker of each component.<\/p>\n

Why? Because investors know that if the product sells well, then every last company supplying parts for the product stands to benefit. And that instantly makes shares of the component suppliers surefire winners, too.<\/p>\n

For some reason, though, the smart money is completely missing a new profit opportunity that just landed on my radar.<\/p>\n

So it\u2019s time we take advantage – and turn the tables on the smart money – before the opportunity disappears\u2026<\/p>\n

How to Turn a Disappointing Corporate Merger into Personal Profits<\/b><\/p>\n

On July 30, the second-largest hospital chain in the United States, Community Health Systems <\/b>(CYH<\/a>), announced plans to buy Health Management Associates <\/b>(HMA<\/a>).<\/p>\n

The purchase price? If we include assumed debt, it checks in at $7.6 billion, or $13.78 per share.<\/p>\n

Like with all merger announcements, shares of Health Management naturally soared, right? Wrong! They actually <\/span>dropped<\/i> 10.8% on the news, going from $14.92 to $13.30. (For the big-shot investors who panicked and sold, well\u2026 your itchy trigger finger could have cost you millions.)<\/span><\/p>\n

We all know that the hospital business is notoriously low margin. But come on! Are conditions so bleak that there\u2019s no value to be had here? Apparently so\u2026<\/p>\n

As Sheryl Skolnick at CRT Capital Group LLC told Bloomberg<\/i> in the wake of the deal, \u201cWhat will a knowledgeable buyer pay for your assets? You got the answer, less than the stock market.\u201d And that\u2019s because Health Management\u2019s \u201cfundamentals are so bad,\u201d according to Skolnick.<\/p>\n

As I write, though, Health Management\u2019s stock is trading even lower, for only $12.90 per share. That means we can employ our trusty merger arbitrage strategy<\/a> and earn a 7% yield by simply buying the stock and waiting for the deal to close in the first quarter of 2014.<\/p>\n

And normally, I\u2019d be content with a 7% merger arbitrage opportunity. Not in this case, though. Why? Because there\u2019s an opportunity to earn even bigger profits without taking on any additional risk. And who doesn\u2019t want that?<\/p>\n

PSTX: An Undiscovered Arbitrage Opportunity<\/b><\/p>\n

The biggest beneficiary of the tie-up between Community Health and Health Management actually promises to be a third party – Irvine, California-based Patient Safety Technologies <\/b>(PSTX<\/a>).<\/p>\n

How do I know? Because I\u2019ve been tracking Patient Safety – and its disruptive technology that prevents the most common surgical error in the United States<\/a> – for over a year now. In turn, I\u2019m intimately aware of its business dealings. (Case in point: My MicroCap Tech Trader <\/i>subscribers are already up over 30% on this position. Go here<\/a> to learn more.)<\/p>\n

And guess what? Way back in September 2011, Patient Safety struck a deal with Community Health. And since that time, Community Health has rolled out Patient Safety\u2019s SurgiCount Safety Sponge System at all<\/i> 135 of its affiliated hospitals. (For confirmation, check out pg. 22 of Community Health\u2019s year-end sustainability report<\/a>.)<\/p>\n

With that in mind, it’s a safe bet that Community Health will implement Patient Safety\u2019s system across the 71 hospitals it’s acquiring from Health Management. After all, the technology does save lives and costs. And those are two things hospitals desperately need to do to stay in business nowadays.<\/p>\n

So, what does this mean for Patient Safety?<\/p>\n

Well, currently its technology is under contract for use in 295 hospitals, including seven of the top hospitals in the country, as rated by U.S. News and World Report<\/i>. But once the deal closes between Community Health and Health Management, its \u201cinstalled base\u201d should quickly jump to 366 hospitals (or almost 25% higher) without lifting a finger.<\/p>\n

And yet, even with this free growth in the pipeline, the stock didn\u2019t budge an inch on the news. In fact, shares are trading at the exact same price they did on July 30 (when the deal was announced).<\/p>\n

Wake-Up Call Coming<\/b><\/p>\n

Why isn\u2019t anyone on Wall Street connecting the dots here? It\u2019s simple, really. Given Patient Safety\u2019s diminutive market cap of only $78 million – and the fact that it doesn\u2019t trade on a major exchange (yet) – the \u201csmart money\u201d remains virtually clueless to its existence, let alone the nuances of its business. Heck, only one other analyst even covers the stock.<\/p>\n

But Patient Safety\u2019s low profile doesn\u2019t alter the reality of the situation one iota.<\/p>\n

It stands to benefit the most from the deal between Community Health and Health Management. And I\u2019m convinced that it\u2019s only a matter of time before everyone else figures it out, too. Especially since the stock only needs to trade above $2 per share for 90 consecutive days to qualify for an \u201cup-listing\u201d to the Nasdaq. (It currently meets all other listing requirements.)<\/p>\n

Bottom line: Wall Street\u2019s ignorance never lasts long. And once the smart money connects all the dots here, Patient Safety promises to trade north of $2.50 per share. That represents at least a 25% upside to current prices, which sure beats the typical upside potential in a merger arbitrage deal. So don\u2019t miss out.<\/p>\n

Ahead of the tape,<\/p>\n

Louis Basenese<\/p>\n

The post A Rare Pricing Anomaly in the Healthcare Sector<\/a> appeared first on Wall Street Daily<\/a>.<\/p>\n

Article By WallStreetDaily.com<\/u><\/a><\/p>\n

Original Article: A Rare Pricing Anomaly in the Healthcare Sector<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

By WallStreetDaily.com It\u2019s not like Wall Street to leave profits on the table. But they just did. And if you\u2019ll permit me to set the stage ever so briefly, I promise you\u2019ll be able to use their ignorance to your ultimate advantage and profit. You see, it\u2019s a fact of investing that when a major … <\/p>\n

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