The Next Phase in the ‘Melt Up’
One sector has a history of soaring thousands of percent in market “Melt Ups” like we’re having now. Heck, it’s soared 15,378% (with leverage) in the past.
No, that’s not a typo… That’s what’s possible in the health care sector when things really get going.
To have any chance at gains like that, you need to focus on the long-term trend and use leverage to juice your profits.
The chart below shows what I mean. It shows the massive boom in health care stocks from the early 1980s to the late 1990s. Without leverage, the health care sector led to a massive 1,451%. Check it out:
That’s the long-term trend. Not too bad… But nowhere near a 15,000% move. That’s where the leverage comes in.
Investing in this exact same sector using leverage can do better… a lot better.
It takes guts. Spotting a big trend… betting big, with leverage… and then hanging on is tough. But it works.
In this case, buying the health care sector with leverage could have meant 10 times the return during that huge boom.
Here’s what the sector would have done with leverage back then…
The gains here are astonishing. The leveraged trade soared 15,378% in just a few years… roughly 10 times the health care sector’s return without leverage.
And we’ve seen it happen again in recent years…
In January 2012, the health care sector had traded sideways for years. And at the time, the uptrend didn’t look like much. But it was there, and it looked like it was on the edge of a massive rally.
By investing with leverage, you would have crushed the regular return of health care stocks. Take a look…
This is a huge difference. More than 300% gains for leveraged investors… but just over 100% gains for unleveraged investors.
Today, the opportunity in health care stocks is fantastic once again…
Reasonably Priced, Hated, and in an Uptrend
First, let’s look at value. Health care stocks aren’t all-time cheap. But they’re a better deal than you might expect. The chart below shows it…
The sector recently hit a five-year low based on its price-to-sales ratio (one of the simplest measures of stock market value). It now trades for just two times sales.
The same is true for its price-to-earnings ratio (P/E) – which is the most classic measure of valuing a stock. The health care sector basically trades for the same P/E as the overall market. And if the Melt Up takes off, these companies can absolutely soar.
Despite the value here, investors aren’t interested. They’ve fled the sector. Shares outstanding of the largest health care exchange-traded fund (ETF) are at their lowest levels in years. Take a look…
Shares outstanding of major ETFs give us a glimpse into what investors think of an idea. ETFs can create and liquidate shares based on demand.
So, a falling share count means investors aren’t interested. And in this case, the fund’s shares outstanding are down roughly 13% in less than a year.
That tells us that investors hate the idea of owning health care stocks… which is exactly what we want to see.
The uptrend – the most important piece of the puzzle – is here, too.
My advice is simple. Investors want to make sure they capture the gains of the Melt Up. And they can do it by owning health care stocks, with leverage, right now.
Dr. Steve Sjuggerud is the editor of True Wealth, an investment advisory which specializes in safe, unique alternative investments overlooked by Wall Street, and based on the simple idea that you don’t have to take big risks to make big returns.
He alerts readers to some of the biggest opportunities in the market every weekday at dailywealth.com.