3 Healthcare Stocks Ignoring the Market Mayhem
Traders returned from the holiday-lengthened weekend to a wave of selling. Small-caps and growth stocks remain the hardest hit, but just about everything got tossed out on Tuesday. The mayhem sent the Russell 2000 index over 3% and the Nasdaq down 2.5%. In scanning for anything that could hold steady while the market melted, I discovered three good-looking healthcare stocks that demand your attention.
The case for rewarding relative strength when equities are anathema is simple. If a stock can climb while investors are de-risking portfolios and heading for the hills, it says something about how in-demand the shares are. Bulls are willing to acquire shares despite the mass exodus seen everywhere else.
It’s worth noting the healthcare sector wasn’t all that strong on Tuesday. Nor has it fared well during the market correction. So today’s companies are outperforming both the broad market and their sector.
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If you’re in the mood for shopping strength, here’s a trio of healthcare stocks to consider.
Let’s take a closer look at each stock and identify an options trade that you can use to capitalize on further upside.
Healthcare Stocks Ignoring the Market Mayhem: Bristol-Myers Squibb (BMY)
Source: The thinkorswim® platform from TD Ameritrade
Relative strength isn’t new for Bristol-Myers Squibb. Shares of the biopharmaceutical company have been besting the broader market for two months now. The burst of speed was much-needed after prices fell 24% between September and November. Fortunately, buyers have been quick to pull the stock back from the brink.
Accumulation days litter the landscape and confirm institutions have been scooping up shares. The ascent has carried prices back above all major moving averages, and the 20-day and 50-day moving averages are now rising nicely.
BMY was consolidating near a multi-month high going into this week and ended Tuesday with an impressive hammer candle. The trend strength should continue carrying prices to the old peak near $70. That’s the target.
The Trade: Buy the March $65/$70 bull call spread for $1.70.
You’re risking $1.70 to make $3.30 if BMY returns to $70 over the next 58 days.
Abbvie (ABBV)
Source: The thinkorswim® platform from TD Ameritrade
The price of Abbvie enjoyed a banner year in 2021, with an epic run into Christmas. Shares were up 26% on the year. So far, ABBV stock has spent 2022 digesting the gain while longer-term moving averages play catch-up. The consolidation is well-deserved and sets up a more attractive entry point for new buys.
The past three weeks is forming a high base pattern. Yesterday’s pop carried prices to the top-end of the range, bringing us close to an upside breakout. A quarterly report looming on Feb. 1 could disrupt the pattern, but if you’re willing to give the trend the benefit of the doubt, any weakness will be temporary.
Let’s go with a bull put spread to provide a higher probability of profit and capitalize on the somewhat more expensive options heading into the quarterly report.
The Trade: Sell the February $130/$125 bull put for 90 cents.
You’re risking $4.10 to make 90 cents if prices are above $130 at expiration.
Healthcare Stocks Ignoring the Market Mayhem: CVS Health (CVS)
Source: The thinkorswim® platform from TD Ameritrade
CVS Health has staged quite the turnaround over the past two years. Its share price has doubled off the lows, and prices are nearing their previous record. Combining the strong trend with the recent pause makes for a compelling breakout setup. The pattern actually mirrors Abbvie’s. CVS launched into year-end and has consolidated so far in 2022.
Recall that most stocks have cratered below their 20-day and 50-day moving averages. CVS has not and is maintaining the integrity of its short-term trend. So while we may need the pressure in the market to ease up a bit before a breakout arrives, it’s a surge I want to participate in.
Watch for a break over $106.50, then deploy a bullish trade. Here’s one to consider.
The Trade: Buy the March $105/$110 bull call for around $2.
You’re risking $2 to make $3 if the stock gets above $110.
On the date of publication, Tyler Craig did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
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