Defensive quality & value in the US. My stock buy of the week.

40% ROIC, 25% price plummet, weaker dollar, defensive nature

Hi all, the 4^th of July weekend got me thinking about the US.

With markets at highs, I’d planned to steer clear of US stocks.

But a weaker dollar, ailing healthcare sector, and 25% one-week drop for a company on my Watchlist got me in the buying mood.

So I’ve added a new company to the fund.

Summary

• Molina Healthcare (MOH) at $230 per share

• Unpopular healthcare sector = perfect

• Great value and stellar ROIC

• Defensive nature (for that upcoming market correction)

• Lower dollar is nice too

Read on.

Countering trends

This spring, I’d turned attention away from US stocks.

With markets back to all-time highs, I figured there were few bargains to be found.

But first off, it’s hard to find value anywhere these days.

It’s not like Europe is giving companies away for free (except maybe Novo Nordisk).

And then I spotted a couple of trends right now in the US.

Ones that feel pretty favorable for a contrarian investor.

Trendspotting 1 - weaker dollar

With markets still rising, most of what I see is trending up.

But not the US dollar. It’s in a weakening cycle.

It’s had a bad start to 2025. And it’s about 10% weaker year-on-year vs the Swedish krona.

This isn’t good for American purchasing power abroad.

But for me, in Sweden and buying with SEK, it means I get more bang for my buck in the US.

Trendspotting 2 - ailing healthcare sector

And then another trend: the suffering healthcare sector in the US.

While tech stocks surge and the broader market continues to climb, the healthcare sector is going in the opposite direction.

Healthcare indexes (Dow Jones and S&P) are down some 6% the past three months and negative Y/Y and YTD.

You’ve got some big drops for companies like UnitedHealth (UNH), Humana (HUM) and Centene (CNC).

And this trend is bringing Molina down with it.

Manic market overreaction?

I’m always intrigued when a company falls 20% in one day.

Which Molina Healthcare did last week. Brought down by a profit warning from Cetene. And it’s down a bit further since then.

I believe the market gets things right most of the time.

But I also believe it overreacts, especially on those big swings.

After that one-day plummet, I started to closely review Molina (which was already on my Watchlist).

The more I looked, the more I liked what I saw.

Good value & great ROIC

Looking closely at Molina, I see a lot of value for a company with such high ROIC.

Which surprised me.

Considering how buoyant the US market is, I’m surprised to see such a solid Fortune 500 company priced so low.

Including:

• EV to sales of 0.3x

• Trailing PE at 11

• Forward PE of 10

• EV well below market cap

• EV/EBIT of 7

• PEG at around 1

• Debt/equity at 0.9

• 5-year ROIC of 42%

• Ongoing share buyback program

Fantastic.

And then I noticed something else super interesting.

Trendspotting 3 – up when markets are down

I noticed Molina’s performance in April.

When the market was gripped with fear over tariffs.

While most companies tumbled in early April, Molina surged. Approaching highs for the year.

Wow.

I knew healthcare had defensive characteristics.

But I didn’t realize it could be such a counterweight. Rising so abruptly when others dropped hard.

The time to buy defensives?

Molina isn’t perfect.

It has lower margins than I’d prefer. It’s no longer founder-led. I don’t see significant pricing power.

And the new bill in the US slashing Medicare and Medicaid doesn’t exactly boost confidence.

But that historical ROIC is strong. So there’s long-term quality there.

And you’re talking about an industry that will never die. The need for healthcare services will never end.

I also like and respect Molina’s focus on helping patients with lower incomes.

Most of all, I like bucking upward market trends.

With markets at highs and ripe for correction, I wonder if the time to buy defensives is now?

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Thanks for reading. We’ll see how it goes. Talk to you next week.

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Hi, I’m Joel Sherwood. I analyze stocks and invest each week. And write about it all here. Building an equity fund for the long term. I’m a former financial journalist and current bank employee. I live in Stockholm, Sweden and started the Sherwood Investment Letter in January 2025. Purchases are not recommendations.

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Fund holdings & performance:

Nvidia +35%

Aker BP +22%

Dedicare +11%

Equinor +11%

Pandora +7%

Höegh +5%

Investor AB +1%

Molina Healthcare +-0

Novo Nordisk -1%

Gaztransport & Technigaz -1%

Wallenius -1%

Viva Wine Group -4%

Adobe -6%