This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
See Cramer's multi-million dollar portfolio for FREE and get his new book Get Rich Carefully! Learn More

Book Profits on Health Care Stocks

NEW YORK (TheStreet) -- I have been looking at economic sectors that are overvalued recently, and another sector where investors should take profits is health care.

At ValuEngine.com, we call this sector the medical sector and consider it to be 5.5% overvalued. Only three other sectors are more overvalued: Utilities by the largest amount, 13.4%, followed by consumer staples at 7.7% and finance at 6%.

Today, I will focus on the top 10 weighted stocks in the Health Care Select Sector SPDR Fund (XLV), which contains 52 equity components and is my benchmark for the sector. On July 27, the XLV tested an all-time high of $38.90 after rallying 31.2% from its year-ago low of $29.64. XLV is up 79.8% since March 2009.

This strength should be difficult to sustain given the depleted new drug pipeline among the major pharmaceutical companies. The most notable prescription drug that recently came off patent is Pfizer's (PFE) blockbuster cholesterol drug Lipitor. Now patients can use a Lipitor generic. Also, the companies involved with health care insurance must cope with the Affordable Care Act.

This week, Pfizer and Johnson & Johnson (JNJ) ended plans to develop an Alzheimer's drug after a second trial failure. This drug held the promise of being able to slow the progress of the disease, but the latest trial showed it failed to do so.

On a positive note, after the market close on Tuesday, Express Scripts (ESRX) reported that, while its second-quarter earnings fell 49% on acquisition-related costs, it's adjusted earnings per share were 88 cents, above analyst estimates, and revenue more than doubled. In addition, the pharmacy-benefits manager raised earnings guidance for 2012. The stock surged to a new year-to-date high of $59.95 in after hours trading.



Source: Thomson Reuters

The weekly chart above shows that XLV has a positive but overbought pattern with XLV above its five-week modified moving average at $38.02 with overbought momentum (12x3x3 weekly slow stochastic) reading. The 200-week simple moving average is a major support at $31.11. My annual value levels are $36.71 and $34.12 with weekly, monthly and quarterly risky levels at $39.48, $40.06 and $40.84.

Stock quotes in this article: XLV, PFE, JNJ, ESRX, AMGN 

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
DOW 16,408.54 -16.31 -0.10%
S&P 500 1,864.85 +2.54 0.14%
NASDAQ 4,095.5160 +9.2910 0.23%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto
Advertising Partners

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs