A perscription for losses

May 5th, 2010 – 2 Comments

At this point I would suggest that anticipating a bottom is where we get into trouble


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Lou Schizas is an equities analyst, investor, entrepreneur, professor and television and radio personality – and a true believer in the happiness-inspiring powers of capitalism.


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Shoppers-Drug-Mart

 

Hi Lou,

I always enjoy reading your columns.

I’m interested to know what you think about the huge drop in Shopper’s Drug Mart over the past few weeks. Do you think that the market has overreacted and it may be a good value buy?

Thanks,

Sophie

 

Hi Sophie,

Thanks for your kind words, they are very much appreciated! You ask a great question about Shoppers Drug Mart (SC TSX) which, like the entire pharmacy sector with operations in Ontario, has taken a hit due to a change in regulations that will cut the allowances they receive from generic drug makers. Long term the real losers will be the small independent drug stores who have a limited capacity to withstand these sorts of changes. Lets examine the case for an investment in SC.

 

sc1

The three year chart tells a bleak tale of betrayal as SC barely recovered from the Great Recession as consumers pulled back on their spending and then had its legs cut from under them by the sudden change in a policy that had been in place for decades. There was support at $43.00 but that got taken out on the announcement. The RSI indicates an oversold situation which demands an examination of the six month chart for an signal that we might have found some support.

 

 

sc3

The six month chart illustrates a bit of buying coming into SC. The RSI does seem to have come off the lows and could be a signal that the early stages of bottom fishing has begun. In addition the MACD also seems to be bending to the upside. The last two candlesticks on the chart show that the selling that began in August has taken a bit of a breather.

The $35 is a support level that the stock has to hold if we expect a return to the uptrend. At this point I would suggest that anticipating a bottom is where we get into trouble. The best time to buy a stock is when its going up and that is clearly not the case here.

Happy Capitalism!

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