Why HealthCare Stocks Are A Buy Right Now

Bullish Studio

Guy Adami and Carter Worth discuss why the health care sector looks attractive to them, and which stocks within it could be a buy.   #healthcarestocks #stockstobuy #markets #stocks #stockmarket #biotechnology #biotechstocks

Transcript

00:00 Why was this group catching your eye last week?

00:02 You know, it felt to me as if this was the last group.

00:05 This and Energy was the group that people that were long basically sort of, I think

00:10 they just sort of acquiesced and threw in the towel.

00:13 And I think that's why you saw as precipitous a decline as we did.

00:16 And you also had some political concerns.

00:18 There was some rhetoric out of Washington.

00:20 Obviously, every once in a while, these companies get bullseyes on their back.

00:24 So I totally get that.

00:25 I think to a certain extent, I think what the markets realize is, wait a second, there's

00:29 still some real stories here and valuations are still compelling.

00:32 And you know, last week when Merck was down to 84, Karen mentioned on Tuesday on Fast

00:37 Money that she liked Merck at those levels.

00:39 You look today, I think it actually traded up to 95.

00:41 Eli Lilly, I believe, made a new all-time high.

00:44 Bristol Myers breaking out to the upside.

00:46 So there are real stories around these companies and they have compelling valuations, which

00:50 is in this environment is exactly what you're looking for.

00:53 So although obviously that move to the downside was rather steep and rather quick, I do think

00:59 there's value here in these names.

01:01 Now, the armchair analysts will look at this and say, yeah, a bit of a death cross here.

01:05 I get it.

01:06 We'll see what happens, though, if and when we get through back through that.

01:08 I think it's 150-day moving average, Carter.

01:12 It's a tough spot, right?

01:14 When you break from well-defined lows at a common level, which you've annotated there

01:18 with that green line, and then you recover to and above the level from which you broke

01:24 down, by definition, you're back to a difficult level where there's overhead supply.

01:31 Or said differently, there's memory.

01:32 Once you break and you're at those lows of 4, 5, 7 sessions ago, you have people who

01:39 are trapped by definition.

01:41 Anyone who purchased XLV for the past year is underwater, negative.

01:45 And the human condition, if given a chance mid-hold to get their money back, they seize

01:49 it, many of them.

01:50 So this strength draws out people from above, give me my money back, thank goodness.

01:55 That's one type of memory, people who bought poorly.

01:57 And then there's the opposite, the most hapless, dumb luck player at the bottom or George Soros

02:03 himself.

02:04 When you nail something at the low, you flip the cards over and they show you 8%, 10%,

02:07 12% in sessions, you say, I've got to put it back.

02:10 So you've got memory from below, let me grab it, that was free money.

02:13 Memory from above, thank goodness I'm even.

02:15 It's a tough spot to rally.

02:17 But relative, that's the key.

02:19 I think it's got a long way to go.

02:21 All right.

02:22 Talk to us on a relative basis, because you're going to point out some opportunities that

02:24 you think still exist in the space.

02:26 Well, okay.

02:27 So here are two lines, very straightforward, right?

02:29 It's a comparative chart.

02:31 You've got the sector versus the market year to date.

02:35 We know the sector is down 7.8 and the market is down 17.

02:38 So basically, a thousand basis points of differential.

02:42 You could say, so what?

02:43 They're both down.

02:45 That's true.

02:46 Money's been lost in either one.

02:47 But if one is benchmarked to an aggregate and is running money for an endowment or a

02:53 mutual fund or a family office, it's all about relative performance.

02:58 Meaning if everyone else has a terrible night and you, the lead scorer, even if your team

03:02 wins, you did a good job.

03:04 So look at this chart a different way.

03:06 The second chart is simply the ratio, the relative line.

03:10 And that horizontal line is the start of the year.

03:12 That is actually the alpha depicted by the difference between healthcare and S&P.

03:21 It's beautiful.

03:22 It's up into the right with nice dips.

03:25 It's quite good.

03:26 And then just a few more, we have some long-term charts.

03:29 This is all data.

03:30 So sector data goes back to September of 1989 for the S&P 500.

03:36 And this is simply that ratio chart, healthcare's relative performance to the S&P.

03:41 Now check this out.

03:42 Put in a trend line.

03:43 It's incredible.

03:44 Put in the arrows.

03:46 It's literally bounced to the penny every time.

03:48 I mean, healthcare underperformed for about six years and came down to that line at the

03:54 end of last year and bounced beautifully.

03:56 I mean, what's not to like?

03:59 Yeah.

04:00 So let's hit some of the individual names here because, again, I mean, Guy, you had

04:04 mentioned Amgen and Lilly last week.

04:08 You want to look at a few of these and it's not just individual pharma names or the managed

04:14 care names.

04:15 And you're also going to look at some of the stuff in biotech.

04:17 Let's talk about some of these individual names because if you look at the sectors on

04:20 a relative basis, S&P like you just laid out, they look like these are some places that

04:24 kind of put some money relative to the S&P 500.

04:28 For me, it comes down to just what's the fundamental story and the names we mentioned, they're

04:32 all stories.

04:33 Amgen, for example, the story there is clearly valuation.

04:37 Probably at current levels trading at 13 times next year's numbers, which, as you know, I

04:42 mean, in the space, it's very cheap.

04:43 So I think that alone is worthy of a look.

04:46 But Eli Lilly is probably the best run big cap pharmacy company in the world right now,

04:51 just in terms of lower left, upper right.

04:53 And that's been going on for quite some time.

04:55 Yeah, there have been pullbacks along the way.

04:57 But as you can see, pretty much each time, we've held the moving averages.

05:01 And then you look at a Merck, which has been volatile.

05:04 I mean, Merck had this move from 60 up to 81, back down to 60, got back on its horse,

05:11 traded back down to 84, as I mentioned earlier last week.

05:15 And now here we are making new all time high right around 95.

05:18 Again, decent valuations, a story there.

05:21 They're looking to make an acquisition.

05:23 So you know, growth by acquisition and their organic growth as well.

05:27 So for me, at least, Dan, these names make sense.

05:29 Bristol Myers, I think is the last one we have, which has been on the mat for so long,

05:34 finally getting out of its own way.

05:37 We basically just got through a multi year high a couple weeks ago.

05:42 And again, valuation compelling.

05:44 And I like this story.

05:45 And this is not in a vacuum.

05:46 I mean, these are names we've talked about now for months.

05:48 Yeah, Carter, you know, you just talked about a little the XLV when we were looking at it,

05:53 the ones that guy just kind of ran through a little bit, have that kind of spike move

05:56 over the last couple of weeks.

05:59 Talk to me, though, about a couple that you think could really break out of bigger bases,

06:03 because I think you have a chart here of Humana.

06:06 And this thing looks very different, despite the fact that it did have a very sharp move

06:11 over the last couple of weeks.

06:12 But if you look at that, that very long base that it's been in.

06:15 That's right.

06:16 And so you would say, why would one be interested in the laggard?

06:20 So if you look at its relative performance to the sector, it's been underperforming.

06:25 And that is typically something to avoid unless and until its absolute pattern is good.

06:30 And that's what this is.

06:31 Meaning you are sitting here at very well-defined tops just below, exhibiting now good relative

06:37 strength day to day, bullish price-finding correlation.

06:41 Breakouts, the precondition for a breakout is a protracted range.

06:45 And then you break out, you clear, and you move.

06:49 This is set up very well.

06:50 I like it a lot.

06:51 All right.

06:52 So you just mentioned a laggard.

06:53 If you look at the XBI here, you have a chart.

06:55 This is one that is obviously lagged.

06:58 The broad market is large cap peers.

07:03 Talk to me a little bit about this setup here, because it's been in a well-defined downtrend

07:08 here.

07:09 You think the opportunity is going the opposite way on this one?

07:11 Well, that's right.

07:12 So one could say the lines are arbitrary.

07:14 You've brought a trend line that's arbitrary.

07:17 So forget all the lines.

07:18 Let's discuss how an early bearish to bullish reversal starts.

07:22 If you're in a downtrend, and downtrends are punctuated, characterized by counter-trend

07:27 moves up, each time after you have a counter-trend move, then the resumption of weakness should

07:33 make a new low.

07:34 So the first data point that's incontestable, nobody's opinion, not mine, not anybody's,

07:39 when we started to make the new resumption of weakness, we couldn't make a new low.

07:44 We didn't make a new low.

07:45 Hence that little double bottom that I've annotated there.

07:48 And now the strength is above the level from which it sold off when it put in the double

07:54 bottom.

07:55 So we have the beginning of a sequence change.

07:57 Finally, if and as, that's my bet, that we get above and break out above that downtrend

08:01 line, then we start to have something that has legs.

08:04 And we've seen this in so many things.

08:07 History tells us, whether it's the KWEB recently, or any kind of stock, or currency, or index,

08:14 or commodity, bearish to bullish reversals start a certain way.

08:17 And they start by not making a new low.

08:20 And that's what that double bottom is.

08:21 [MUSIC PLAYING]

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