Aetna Inc. (AET), Auxilium Pharmaceuticals, Inc. (AUXL), and ArthroCare Corporation (ARTC): 3 Healthcare Stocks to Avoid

Insiders have information about a company which is not available to outside investors. On the other hand, institutional investors have a lot of resources at their disposal to better assess a stock, something which is not possible for retail investors. The companies listed below have witnessed heavy selling by institutional investors and insiders, which is a strong sell indicator.

Aetna Inc.Aetna Inc. (NYSE:AET) is a diversified health care benefits company with operations in the United States. The company has three basic segments which are Large Case Pensions, Group Insurance, and Health Care. The Health Care segment focuses on providing various plans on insured basis, employer-funded, or administrative basis. The Group Insurance Segment offers insurance products for voluntary spouse, dependent life insurance, and group term life insurance. Various retirement products and plans are managed by the Large Case Pension Segment.

The entire healthcare plans industry has been on a high of late due to good news on Medicare reimbursement rates. The Center for Medicare and Medicaid services has recently increased the reimbursement rates for healthcare plan providers by 3.3%. The stock has responded positively to this news and appreciated 5% in April. In the last one year, Aetna Inc. (NYSE:AET) has appreciated 15%, which is not bad by industry standards.

Despite these positives and overall positive momentum of the stock, there has been some heavy selling by institutions and insiders. In the last six months, institutions have sold a total of 24 million shares of the company, reducing their total holdings by around 8.4%. During the same period, insiders have reduced their own holdings by a mammoth 23%. At current valuations, Aetna Inc. (NYSE:AET) is trading pretty close to its mean sell side target price of $57, and has limited upside potential for investors.

Auxilium Pharmaceuticals, Inc. (NASDAQ:AUXL) is a biopharmaceutical company which commercializes specialty pharmaceutical products. Its primary products include Testim for hypogonadism and XIAFLEX for Dupuytren. The company is also undertaking Phase III trial for the treatment of Peyronie with XIAFLEX.

In the last one year, shares of Auxilium Pharmaceuticals, Inc. (NASDAQ:AUXL) have depreciated approximately 11% due to fears of generic competition and the company’s inability to grow its XIAFLEX franchise. These factors have also contributed to institutional investors losing confidence in the company. In the last six months, institutions have sold approximately 7.9 million shares, reducing their total holdings by a significant 20%. During the same period, insiders have added only 56,000 shares to their holdings, an increase of 0.6%.

The company will continue to face problems throughout 2013 with tough competition to its Testim franchise. The drug has strong competition from AbbVie Inc (NYSE:ABBV)’s AndroGel, and Actavis Inc (NYSE:ACT) is also preparing to market its own generic version in mid-2015. These will significantly affect the approximately $250 million in sales the company generates from Testim. Due to these headwinds and no current pipeline catalysts, investors should stay away from Auxilium Pharmaceuticals, Inc. (NASDAQ:AUXL).

ArthroCare Corporation (NASDAQ:ARTC) is a medical devices company and is involved in the development and commercialization of surgical products. The company also offers sports medicine products, including ArthroWands, surgical wands, soft-tissue fixation products, etc. Over the last 52 weeks, the stock has fluctuated between $24 and $37. The sell side has a mean target price of $39, which translates into a 16% upside to current valuations.

In the last six months, institutions have sold approximately 2.6 million shares of the company, reducing total ownership by 11%. During the same period, insiders have sold 70,500 shares of ArthroCare Corporation (NASDAQ:ARTC), reducing insider ownership by 21%. One of the primary reasons behind the insiders and institutions selling their stock is the superb 34% run in the last 52 weeks. I believe there are not enough catalysts to take the price higher, and investors should stay away from the company because insiders and institutional investors are already taking profits.

Bottom line

The three companies discussed above have seen insider or institutional selling in the last six months. Moreover, there are no strong catalysts to push up the stock price which significantly limits their upside potential. Therefore, investors should stay away from these stocks until more solid catalysts emerge.

The article 3 Healthcare Stocks to Avoid originally appeared on Fool.com and is written by Mohsin Saeed.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

The 10 Most Expensive iPhone Apps

The 9 Most Expensive Designer Shoes in the World

The 10 Most Expensive Cigarette Brands

The 10 Most Expensive Law Schools in the US

The 10 Best Wall Street Movies

The 10 Most Expensive Golf Clubs Ever Sold

The 10 Most Expensive Golf Memberships

The 10 Best Disney Characters Ever Created

The 8 Best Foods for Gaining Weight

The 10 Most Expensive Colleges in the World

The 7 Most Memorable Ad Campaigns of All Time

The 7 Most Expensive High Schools in the World

The 10 Electric Vehicles with the Longest Range

The 10 Cities with the Worst Drivers in the World

The 10 Most Expensive Dresses Ever Created

10 Islands to Visit Before You Die

10 Famous Celebrities Who Needed Rehab

The 15 Countries with the Largest Oil Reserves

The 10 Most Overused Excuses in the World

The 5 Best iOS Apps You Can’t Get on Android

5 Companies Damaged By Social Media Blunders

The 10 Most Legendary Blues Songs

The 10 Most Lawless Places in the World

4 Reasons China is a Threat to the US

The 17 Most Sugary Drinks in the World

The 10 Most Ruthless Rulers in History

The 10 Greatest Generals in History

Top 8 Travel Destinations for 2015

The 10 Safest Dog Breeds for Children

The 10 Most Stolen Vehicles in the US

The 7 Most Expensive Celebrity Weddings

The 10 Best LoL Teams in the World

Top 10 Worst Marketing Campaigns Ever Produced

Top 5 Diets that Help You Lose Weight

The 10 Best Ways to Stay Awake

7 Artists That Switched Musical Genres

The 10 Most Expensive Cities to Live in New Jersey

The 10 Best High Schools in New York

The 10 Countries With the Least Gender Inequality

The 6 Biggest Musician-Manager Feuds

The 10 Countries with the Cheapest Gas Prices

The 7 Most Theatrical Bands of All Time

The 8 Worst Band Breakups of All Time

The 10 Most Important South American Leaders

The 7 Most Successful Casting Show Winners

The 10 Most Peaceful Countries in the World

5 Big Reasons Communism Failed

The 15 Most Famous Carl Icahn Quotes

10 Scary Animals that are Actually Harmless

The 8 Most Famous Singer-Actors in Entertainment

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!