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