Top Advisors Corner

Mary Ellen McGonagle: Defensive Plays That Also Have High Growth Prospects August 17, 2018

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This week we’re seeing money flows back into the more defensive Consumer Staple and Utility sectors which are both up 2.5% vs the S&P 500’s week to date return of 0.25%.  Continued global trade tensions combined with talk of slower economic growth in China has some investors a bit concerned about the prospects for the broader markets.  

And with earnings season winding down, the focus on these negative headlines may very well only intensify.

For those who are looking for a way to buffer their holdings from a potential increase in volatility, one need to look no further than the Healthcare sector. 


Healthcare stocks are defensive as well as the need for Healthcare Providers and the services and products they offer will remain in demand despite any potential slowdown in global economies. 

And even more positive is the fact that more than 90% of health-care companies exceeded earnings forecasts in the second quarter, beating every other sector. Health-care also jumps out for having the fewest downward revisions in operating margins according to RBC Research. 

In addition, there have been several favorable policies signed into effect with the Trump administration which will only help the prospects for this sector.

To begin, there’s been a major boost to Federal funding for research into new drugs all while Trump has repeatedly vowed to slash FDA approval restraints which will help get these new drugs to the public faster.

As for drug prices, the White House unveiled policies which will be much less impactful than originally imagined and more recently, the Trump administration released a finalized rule relating to short-term insurance coverage which is estimated to move 1.6 million people to health care providers.

While all of this is a lot of information, we’re going to point you toward  2 technically sound companies as well as 2 ETFs that stand to benefit from all of these positive factors.

First up is Centene Corp (CNC) which is a Healthcare Provider that just broke out of a base this week on heavy volume. While the stock has been in an uptrend for some time, analysts continue to revise earnings estimates upward going forward following its recent release of strong earnings. This company is also poised to benefit from Trump’s new short-term insurance coverage policy. I would be a buyer on any pullback to its key 10 day moving average.

 

 DAILY CHART OF CENTENE CORP

Next up is pharmaceutical giant Pfizer (PFE) which came out with 2nd quarter earnings 2 weeks ago that were much higher than analyst’s estimates. In addition to having 4 active drugs that are currently pulling in revenues that are ahead of estimates, management pointed to a robust funnel of 25-30 new possible drug approvals going into 2022.  This is a very positive for the future earnings and revenues for the company.

While Pfizer has rallied 7% since its recent earnings report, it has held in remarkably well since this advance and its bullish uptrend is firmly in place.

DAILY CHART OF PFIZER, INC.

For those looking to invest in a basket of Health-related stocks, there are several top performing ETF’s that you may consider. First Trust Health Care Fund (FXH) is one such diversified ETF with Medical Instrument, Healthcare Providers and Pharmaceutical companies to name a few categories. FXH just broke out to a new high today on volume which is a very bullish sign.

Another top performer is Invesco S&P Small Cap S&P ETF (PSCH).  Many of the newer and more innovative companies within the Healthcare Industry are smaller companies that are creating new drugs and products as well as new ways to economically provide these services to consumers. 

Both ETFs are in strong uptrends.

For those who would like to uncover ways to profitably trade Healthcare as well as stocks in other areas that are outperforming the broader markets, please check out my website at MEM Investment Research.

 

 

 

 

 

 

 

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