Healthcare – Back from the operating table? – Technical Analysis
Highlighting: Merck & Co., Inc. (Public, NYSE:MRK)
It appears healthcare has received a tranquilizer boost, posting nice gains across the sector on Friday. Healthcare stocks customarily show positive seasonal tendencies beginning around this timeframe. However, guidance by some players following recent earnings provided indications that current year earnings would be to the lower end of analysts estimates, which in turn put pressure on stocks in this space, smothering a nice seasonal entry point that was recently revealed. Merck reaffirmed its favorable guidance on Friday, easing concerns that the healthcare reform bill would negatively impact this company’s bottom line.
Stocks within this sector are overwhelming indicating favorable technical signals, Merck being one of those equities. The stock showed gains of 5% on Friday, so where will the stock move next?
Stocks on Friday averaged gains of almost 1% on volumes over 12% lower than the day previous. Of the 1661 stocks analyzed, 1234 advanced, 400 declined and the remaining 27 were flat on the day. Overbought levels continue to be extraordinarily high at 60% of stocks according to stochastics and 34% according to RSI. Small-Caps took the session, averaging gains of 1.09%. Mid-Caps and Large caps followed behind at 0.98% and 0.89%, respectively.
Analysis has revealed that with a buy date of October 11 and a sell date of December 31, investors have benefited from a total return of 136.23% over the last 10 years.This scenario has shown positive results in 8 of those periods.
Conversely, the best return over the maximum number of positive periods reveals a buy date of April 29 and a sell date of May 8, producing a total return over the same 10-year range of 20.44% with positive results in 10 of those periods.
The buy and hold return for the past 10 years was -18.76%.
Comments:
Merck has a "buy" analyst rating and institutions have been heavily accumulating shares on net.The stock has been trading relatively negative since the start of the year despite these favorable ratings and value still being apparent in the fundamentals. The fundamental target on this equity is between $39 to $40, which is still lower on an earnings multiple basis than what this stock should be and has been trading at.
The stock is currently trading at a P/E of 10, but the average PE over the last 5 years has been double that.The healthcare reform bill has certainly left many investors to question the effects on companies such as this that produce pharmaceuticals that are in jeopardy of losing their margins as a result of drugs turning generic. But regardless of this, the demand for the products that this company produces will only continue to grow as the population ages and the recession-related stress will force us all to resort to the drugs that this company produces.
Seasonal tendencies at present are moderately positive with gains between now and the end of May averaging around 3%.We have already seen a 5% jump on Friday, which pulled the stock back within its expected range.The stock still sits near the bottom of this range, so, even if it stays within this spectrum, high-side gains of around 7% can be expected.
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Disclosure: Mr. Vialoux does not own securities mentioned in this report.
Disclaimer: Comments and opinions offered in this report at EquityClock.com are for information only. They should not be considered as advice to purchase or to sell mentioned securities.
Data offered in this report is believed to be accurate, but is not guaranteed.
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