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

Foods That Stain Your Teeth

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

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!