Taking Advantage of a Recession-Resistant Sector

Going through our very narrow list of stocks with positive technical configurations, we came across an intriguing issue. And it's not another bank stock either. It's Steris Corp (STE - commentary - Cramer's Take), which, as its name implies, is in the business of sterilization.

If you worried about the economy and the possibility of a protracted slowdown outside of the finding the occasional oversold trading opportunity or tactical trade, it is still a challenge to identify the strategic investment opportunity. The company should benefit from being in one sector that should remain resilient to the economic troubles, health care. It is also, to a large degree, independent of the socialized medicine issues, too, because as long as people get sick, no matter who pays for treatment, they will need clean instruments to perform medical procedures.

Steris is the world's leading maker of sterilization and decontamination equipment. It is also a large producer of surgical products, such as lights and tables. Keeping in the tradition of clean products the company also offers consumable products, like hand sanitizers.

Steris has had three straight quarters of earnings growth. That growth has been due to some creative cost-cutting and refocusing their attention back to their customer base. One potential negative impact on the company is the credit issues impact on the sale of this equipment. While credit has gotten tighter, it's not a purchase that can be put off because you can't stop sterilizing medical instruments. With that said, the slowing economy and tighter credit could still have an impact on hospitals capital spending.

We have an underlying strong company with in-demand products that is about as resilient to the economic slowdown as you can get due to the need for their products. What stands out to us more is the market's acknowledgment of this underlying strength based on the price action. The stock is one of the few issues that are up for the year to the tune of about 20%. That's no small accomplishment in the current market environment.

Steris

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What intrigues us is the current technical configuration is indicative of a stock that is under accumulation. The stock is in an uptrend, as indicated by the rising 200-day moving average and series of higher highs and higher lows. During the panic that hit stocks in September and October, the stock managed to hold long-term support in the $28 area and has been recovering from those levels, driven by a strong earnings report.

Steris is now into intermediate term resistance in the $36-$38 range. We expect this resistance to be taken out and a move up to the $42-$43 range is likely. The $30-$31 level would be a good place for a stop on long positions.

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At the time of publication, John Hughes and Scott Maragioglio had no positions in the stocks mentioned. Hughes and Maragioglio co-founded Epiphany Equity Research, which has developed and utilizes proprietary tools to identify and track liquidity changes in the market indices and sectors. Hughes advises numerous asset managers, hedge funds and institutions managing in excess of $30 billion. Maragioglio is a member of the market technicians association (MTA) as well as The American Association of Professional Technical Analysts (AAPTA) and holds a Chartered Market Technician (CMT) designation. Maragioglio has also served on the board of directors of the AAPTA.