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. (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.
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.
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