National HealthCare Shares Dropped: What You Need to Know

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of National HealthCare (NYS: NHC) plunged 12% in Monday trading. The stock didn't report earnings (although this time of year, it seems like it's the only company that isn't reporting), so what was it exactly that caused the sell-off? Did anybody catch the plate number on that truck?

So what: Actually, yes. The license plate read: "TRACKMORGANKEEG." And on CAPS, we've got the number of the analyst that downgraded National HealthCare and sparked the sell-off. According to our supercomputer, Morgan Keegan is one of the better analysts on Wall Street, outperforming more than 91% of the investors we track.

Now what: According to Morgan, National HealthCare is worth about $44 per share, and likely to only pace the market's returns over the next 12 months. As such, the analyst sees no compelling need to buy the stock.

Me, I disagree. I mean, sure, priced at 11 times earnings, and projected to grow at 12% over the next five years, National HealthCare is not the cheapest stock I've ever seen. But it's reasonably priced, and it pays shareholders a 2.5% dividend. NH carries only minimal debt, and its balance sheet is loaded with more than $120 million in cash. I'd say these factors should suffice to help NH outperform the market by a tidy margin going forward.

Long story short, I'm calling B.S. (bullish sentiment) on this downgrade. I think the sell-off is overdone, and investors should give National HealthCare a second look.

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At the time thisarticle was published Fool contributorRich Smithdoes not own (or short) shares of National HealthCare. The Motley Fool has adisclosure policy. Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.

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