No medic needed, but thanks anyway
Hospital and outpatient rehabilitation center operator Select Medical Holdings Corporation (NYSE:SEM) has certainly been a favorite among short-sellers over the past year. Select Medical has had numerous difficulties in meeting Wall Street’s forecast profits, and recently lowered its full-year forecast due to the negative effects of the sequester. Yet as I noted last week, now looks like the wrong time to be betting against this particular hospital company.
The implementation of the Patient Protection and Affordable Care Act on Jan. 1, 2014, is going to be a game-changer for the hospital sector. Requiring individuals to carry insurance should, in theory, allow hospitals to see fewer charge-offs because of unpaid services rendered.
Another big factor working in the sector’s favor is a considerably more accommodative Centers for Medicare and Medicaid Services. Most analysts had been expecting a decrease in Medicare reimbursement to acute-care facilities but we actually saw an increase in those reimbursements. In short, the reins on the health care sector aren’t tightening as quickly as we first imagined, which is great news for hospital operators.
Select Medical Holdings Corporation (NYSE:SEM) is just plain cheap at these levels — about nine times this year’s earnings and eight times next year’s. It would take an incredible contraction in reimbursements for Select Medical Holdings Corporation (NYSE:SEM) to fall much further. This is another cash cow that shorts have no business betting against at these levels.
Foolish roundup
This week’s theme is all about necessity. An aging, and what you might call naughty, population makes hospital operator Select Medical Holdings Corporation (NYSE:SEM) and private corrections operator CCA somewhat indispensable. Lear Corporation (NYSE:LEA), on the hand, could be vulnerable if higher taxes get the better of consumers’ disposable income.
What’s your take on these three stocks? Do short-sellers have these stocks pegged, or are they blowing smoke? Share your thoughts in the comments section below.
The article Shorts Are Piling Into These Stocks. Should You Be Worried? originally appeared on Fool.com.
Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.The Motley Fool owns shares of, and recommends, Ford Motor Company (NYSE:F). It also recommends Corrections Corp Of America (NYSE:CXW).
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