After a week or more of heavy selling, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) experienced a strong rebound today, rising almost 2% to 5005 points.
Healthcare stocks were hit hard as investors digest the recent MYEFO spending cuts, which are set to remove $639m from pathology and diagnostic imaging over the next four years.
Two stocks that rose significantly in recent days also experienced a modest decline as investors took profits. Here's what you need to know about today's falls at:
Primary Health Care Limited (ASX: PRY) shares lost 8.5% to $2.36 as shareholders dumped the stock over mounting nervousness regarding the impact of yesterday's government spending cuts. Primary's management hasn't yet quantified the likely impact on the stock, further increasing the uncertainty.
Now trading at 10-year lows, Primary shares are starting to look interesting as the company is likely to enjoy robust demand for its services over the long term. However, given the uncertainty regarding the impacts on its revenues and profits, shares could well fall further from here.
Sonic Healthcare Limited (ASX: SHL) also lost 5% to $17.51 today on investor concerns regarding its pathology and diagnostic imaging business. Sonic shares have been buffeted by a few upsets recently such as the loss of a touted Canadian contract as well as average profit growth.
Like Primary, Sonic is likely to experience reliable long-term demand, and has the added advantage of a better balance sheet and significant international revenues to counterbalance Australian spending cuts.
Junior imaging competitor Capitol Health Ltd (ASX: CAJ) also fell hard today, losing 12% to $0.26.
Greencross Limited (ASX: GXL) – down 3.5% to $5.77
Greencross shares soared 30% yesterday on the back of reports in Fairfax media that stated a private equity buyer was in the market for up to 14.99% of the company at a price of $5.79 per share. Greencross rose as high as $6 yesterday before being sold down today as investor enthusiasm cooled off.
Despite yesterday's rise, Greencross shares still look cheap today and I expect any takeover offer will have to pay a price well above $6 in order to get shareholders on board, bearing in mind the company's growth prospects.
Smartgroup Corporation Ltd (ASX: SIQ) – down 5.8% to $4.67
Like Greencross, shares in novated leasing business Smartgroup Corporation declined as investors took profits following a 25% rise on Monday. Shares in Smartgroup have risen more than 200% since listing on the ASX last year, yet despite this the company trades on a Price to Earnings (P/E) ratio of approximately 19x earnings, which is not expensive given that it is posting double-digit growth.
The real question is what will happen when Smartgroup comes into competition with larger peers like McMillan Shakespeare Limited (ASX: MMS). For the time being however, Smartgroup could make a decent growth investment.
