Portfolio Tweak

A few days ago I executed a small tweak in the portfolio. I had held Stryker as an almost across the board holding for many years with the big idea being that boomers would stay active longer than their parents but that activity would require more boomers to need part replacement (knees and such).

From a more bottoms up view, there is no debt, decent cash flow and the rest of the stats look good as well--most of them anyway. In the time I have owned it it has not really distinguished itself as being a good or a bad hold. At times it has outperformed and at times it has lagged in coming out about the same as the broad healthcare sector over the last five plus years.

The reason why I sold it is that it began to dawn on me that there is some aspect of this type of surgery that can be viewed as being discretionary and if the financial crisis has really had the impact on personal finances that the experts say it did then it stands to reason that some procedures won't get done as money needed for the deductible would be harder to part with (all the more so for people who would pay out of pocket for whatever reason). Carrying it a step further it is possible that boomers will have to cut back some on some of the more expensive activities that could necessitate a future replacement.

My thinking may be right or not but I don't want to stick around in the name to find out. In the healthcare sector I would rather avoid any hint of discretionary (or perhaps more precisely, elective) spending which lead me to diabetes. Some of the numbers I dug up doing research were brutal in terms of growth rates for diabetes and once someone learns they have it it has to be treated. Sadly it seems that everything points to more and more people being diagnosed which bodes well for Novo Nordisk (NVO) so the trade was dollar for dollar out of SYK and into NVO.

From the top down the trade slightly increases the foreign exposure of the portfolio (although about 30% of NVO's revenue comes from the US) after a big move up in the greenback, adds a new non-euro country in Denmark but it also increases the average cap size a little (SYK about $20 billion and NVO about $40 billion). Additionally the position provides access to about 25% of Novozymes.

NVO's stats look pretty good as do estimates and the primary business is something that a growing number of people (and their insurance companies) will have to spend money on. Being wrong about this would mean very good things for the health of Americans. NVO is the largest company in the OMX Copenhagen 20 Index and so is featured prominently in a couple of ETFs including the GlobalX FTSE Nordic 30 ETF (GXF).

A couple of things about Denmark; you know from Bill Gross's ring of fire that its debt situation is well under control, unemployment in December was 4.3%, GDP contracted slightly in 2009 but is forecast to go slightly positive this year.

The picture includes a couple of dogs that we are babysitting for the week. The dogs are up for adoption through my wife's rescue. The brown one at the bottom left whom I am calling Brownie and the black one in the middle of the steps whom I am calling Blackie can be found through the United Animal Friends website.