True Home Gamers know by now that the best way to play a post-correction market is to find those companies that reported a strong quarter before the dip and then got marked down because of the panic. Stocks that just reported great earnings are immunized against reporting a shortfall in the near future. You can’t blow out the estimates and raise guidance one week and then savagely cut guidance two weeks later. Today’s stock, Chemed , fits these criteria.
Chemed is actually made up of two separate businesses. The first, making up about 40% of Chemed, is Roto-Rooter, the number-one drain-cleaning company in America. The drain-cleaning business just keeps making money, and that’s a huge part of this company’s phenomenal earnings story. The other is Vistas, a manager of hospices. Both companies are highly profitable, though there is some risk with Vistas.
Medicare, which pays for a lot of hospice services, has implemented caps on how much a hospice can receive per patient. When Chemed realized that some of its hospices, namely those in Phoenix, were nearing those caps, it exited those markets. The company also regulates the length of stays in order to steer clear of those caps as well.
The real story here, though, is about earnings. On Feb. 21, CHE reported 67 cents per share versus an estimated 57 cents. Even better, they offered full-year guidance for 2007 of $2.45 - $2.60 versus the Street’s predicted $2.27. The stock jumped almost $7 in a day, and last week’s sell-off only took about $2 off that spike. The dip wasn’t that big, but it was CHE’s momentum that was held back. Cramer thinks that now the company is ready to run like it has never run before.
Bottom Line: Cramer’s next pick among the rubble is Chemed. Buy some before it gets its momentum back.