So I was thinking about my portfolio and where the opportunity is. Could it be in healthcare? At first, one thinks not. A defensive sector at a time of what is "hopefully" economic renewal. Then again, in the aftermath of this pandemic, there are so many individuals left with lingering symptoms that healthcare remains front and center.
As of early May, the Health Care Sector Select SPDR ETF XLV stood up a cool 8.7% year-to-date, which seems awesome for little over four months work, until one realizes that the S&P 500 itself is up 11.4% over the same time frame.
Demand for quality healthcare remains a public concern. How to pay for it is a personal and political concern. Then, there is the investor's or trader's perspective -- the eternal quest to be in the right place at the right time. I have chosen four names that I think do well going forward, three of them admittedly from my personal portfolio, while the fourth probably should be. Let us explore.
Pfizer (PFE) was a pick of mine in the early days of the pandemic based on my feeling after doing the research that Pfizer would be first to market with a vaccine for COVID-19. And in collaboration with German biotech BioNTech (BNTX) , they were. As the FDA is probably close to authorizing this vaccine for 12-to-15 year olds, and as the Biden administration is backing U.S. vaccine makers capable of mass manufacturing to export their vaccines to other markets, I see Pfizer as potentially the corporation that saves the world.
In early May, Pfizer reported sizable top and bottom line beats for the first quarter, while increasing guidance for revenue produced by BNT-162b2, its COVID vaccine, to $26 billion from $15 billion. The firm’s five business units apart from Vaccines -- Oncology, Internal Medicine, Hospital, Inflammation & Immunology and Rare Diseases -- are all growing nicely. In other positive news, the firm did not lose patent protection for breast cancer drug Ibrance back in February, as the U.S. Patent and Trade Office extended its patent through March 2027.
I am long this name, as I am also long key competitor Moderna (MRNA) . That said, Pfizer is more stable, yields 3.9% and is currently breaking out technically from a $39 pivot. My target price is $48, while my point of panic is $36.
AbbVie (ABBV) is another name that I am long almost just for how well management steers this ship’s performance. AbbVie is the home of wonder-drug Humira, which has provided a cash flow machine for the firm. This is why AbbVie acquired Allergan last year. Humira had already lost patent protection in Europe and is scheduled for the same fate here in the U.S. by 2023. Allergan brought with it exposure to aesthetics, neuroscience, eye care and oh yeah... Botox, which is used not just for cosmetic purposes, but also to treat migraines. Botox specifically, and Allergan more broadly, is how AbbVie expects to traverse the cash flow cliff that would have occurred in 2023.
AbbVie reported both top and bottom line beats for the first quarter, while increasing full-year guidance for adjusted EPS by a nickel at both the top and bottom of the range to $12.37 to $12.57. Wall Street is on the high $12.30s on this. The firm also upped expectations for full-year revenue growth from 9.4% to 9.8%.
In addition, the firm continues to pay down debt, due to the Allergan acquisition. It is expecting to pay down $17 billion worth this year alone, and to continue doing so, though specifics have not yet been given, over the next two years, all the while still yielding 4.6% in dividend payments to shareholders.
This name is also currently engaged in a technical breakout, coming off of a five-month basing pattern with a $113 pivot. As I mentioned, I am long this stock. I have a $137 target price, and a $107 panic point.
3. CVS Health
Yes, we have another name for you currently engaged in a breakout and yes, I already own this one too. CVS Health (CVS) is your one-stop shopping home for all things healthcare. The Pharmacy Services unit offers management solutions to employers, unions, insurance companies, health plans, etc. The Retail/LTC segment is the in-store pharmacy, as well as the front of the store where over-the-counter drugs, health and beauty aids and convenience products are sold. More than 10,000 of these outlets are spread across the nation.
Then there's the Health Care Benefits segment, offering traditional consumer-directed health insurance products. This unit serves employer groups, health care providers, government units and government-sponsored plans. CVS reported the firm's first quarter performance in late April, and yes, the firm bested Wall Street's expectations for both sales and profitability. In fact, CVS increased full-year guidance for adjusted earnings per share to $6.24 to $6.36 (from $6.06 to $6.22), while confirming guidance for cash flow from operations of $12 billion to $12.5 billion.
Readers will see the spot in late February where what looked to be an established basing pattern morphed into an "ascending triangle", which if that's new to you, is basically flat line resistance at the top of a chart, coupled with successively higher lows. This is a bullish pattern. The stock is breaking out from a $77 pivot. I have a $92 target price on this name, and have placed my panic point at $71.
4. Thermo Fisher Scientific
Okay, we are down to the one name I told you that I was thinking about getting involved in, but have yet to pull the trigger. Demand for what this firm provides should only increase in my opinion as large swaths of the public start seeking out medical care for issues put on hold during the pandemic. Have you heard of such brand names as Applied Biosystems, Fisher Scientific, Unity Lab Services or Patheon Brands? Yup, they're all part of Thermo Fisher Scientific (TMO) .
Briefly, the firm's Life Sciences Solutions segment offers instruments, consumables for biological and medical research, production of drugs and vaccines, as diagnosis of infections and disease. The Specialty Diagnostics segment offers liquid, read- to-use and lyophilized immunodiagnostic reagent kits, as well as asthma tests. Lastly, the laboratory Products and Services segment provides laboratory refrigerators including freezers and ultra-low temperature freezers, storage tanks, sample preparation and preservation and much, much more.
TMO reported first-quarter earnings in late April. Yes, this is another name beating on both the top and bottom lines, and doing so on improved operating margins at that. Earnings growth printed at an astounding annual rate of 145%, a third consecutive quarter of 91% earnings growth or more. And they did this on revenue growth of 59%, a fourth consecutive quarter of rapid acceleration.
Readers will see that TMO is in the process of closing a six-month long pennant, which is named so because a series of lower highs coupled with higher lows looks like a pennant.
These kinds of formations tend to end with an explosive move once the pennant closes. With how well the firm is executing, I am willing to bet that this move will be higher. The stock "only" trades at 21 times forward looking earnings, so even with a hefty price, the stock is not truly expensive. I just need that 50-day simple moving average of $463 to stay above the 200-day simple moving average of $459. What we don't need if we get long on this name too early is an algorithmic reaction to what is known as a "death cross," meaning that there could be an immediate negative electronic reaction to the 50-day simple moving average passing below that 200-day line.
Stephen “Sarge” Guilfoyle writes on stocks and the markets each trading day for Real Money, TheStreet’s premium site, including his popular Market Recon column every morning. Guilfoyle is also co-portfolio manager of TheStreet’s Stocks Under $10.
At the time of publication, Guilfoyle was long Pfizer, AbbVie and CVS.