By: Costas Bocelli — July 15, 2021
Here’s the Sector to Look at While the Market’s in Turmoil
When the market is doing well all around, it’s tougher to pickout the strongest players.
(If you're not interested in reading, you can watch the video version below.)
(Chris Rowe just wrote about the challenges the market is currently facing currently in his “Technical Tuesday - Declines to Come and Strength to Follow.” Give it a read to understand better some of the strange divergences we’re currently seeing.)
Today, I’m going to focus on one sector showing a lot of strength right now and give you some insight as to why.
The Healthy Healthcare Sector
Regardless of your feelings about national healthcare, it looks like it’s here to stay.
A major Supreme Court ruling on June 17th ruled against states seeking to strike down the Affordable Care Act. In particular, the court ruled 7-2 against getting rid of the individual mandate provision of the law.
And the market is clearly reflecting the impact of that decision.
Let’s take a look at some breadth indicators clearly displaying the Healthcare Sector’s strength.
Demand is in control within the Healthcare Sector. More than half of the stocks that reside in this industry group are trading on buy signals. If you look at the BPI chart below (from our Sector Prophets Pro sector research platform) you’ll see it’s in a strong column of X’s.
In fact, it’s on a point-and-figure Buy signal and on bull confirmed status -- the strongest designation for this indicator.
(Click any image to enlarge.)
The Healthcare Sector is also strong versus the stock market.
Just take a look at the RS chart, below, showing the Healthcare sector relative to the S&P 500.
The chart is in a rising column of Xs and on a relative strength Buy signal—meaning the sector is outperforming the S&P 500 on both a shorter-term and longer-term relative basis.
And it’s important to note that this is happening even as the S&P 500 makes new record highs!
So, what does this overall relative strength of the Healthcare sector mean in terms of price?
Analyzing the Price Movement of the Healthcare Sector
If we take a look at the SPDR S&P Health Care Services ETF (XHS), we see a strong general uptrend with the 50-day Exponential Moving Average (EMA) currently serving as support. (The 50-day EMA is the blue line in the price chart below.)
If we drill down a little deeper and find the strongest stocks within Healthcare we’ll find that Centene Corporation (CNC) is a standout.
Centene Corporation (CNC) provides healthcare services to government-sponsored and commercial healthcare programs with a focus on underinsured and uninsured people.
Among other things, it has a Specialty Services segment that provides pharmacy benefits and other services to correctional systems and other government agencies primarily through Medicare, Medicaid, and commercial products.
It’s exactly the kind of company that would benefit from news that our national healthcare policy is stabilizing.
It shows too. Just take a look at the CNC price chart, below. The stock is in a positive trend and it’s trading at just under 15 times next year’s earnings. So it’s trading cheap relative to the broad market (the S&P 500 is trading 22 times next year’s earnings).
Tailwinds for CNC - The Future of National Healthcare
A recent study by The Harris Poll found that 44% of older millennials—who happen to be entering into their 40s here in 2021—report they have been diagnosed with at least one chronic illness.
The report continues to explain that the rates of hypertension, diabetes, and obesity are going up in millenials versus previous generations. More health problems means more health costs.
The younger generation have good reason to embrace nationalized healthcare, as many of them were granted an extension on using their parents’ healthcare plans until they were 26 years-old.
After the age of 26, though, they were on their own until national healthcare became available.
In other words, the next group of people set to run the country are embracing national healthcare, and companies like CNC stand to benefit the most.
I don’t know what will happen next with Healthcare, but from an investment perspective, it looks like the place to focus your attention.
I can’t wait to do this again next week.