The healthcare sector has been climbing lately.
After falling nearly -29% between February 12 and March 23, the XLV S&P 500 Healthcare Sector SPDR has since risen 32% as investors have embraced signs that the coronavirus outbreak is starting to plateau in the U.S.
“You’re definitely seeing a wave of support here,” said Bill Baruch, president and founder of Blue Line Capital. “J&J got the earnings season off to a good start.”
Johnson & Johnson reported first quarter earnings on Tuesday, posting earnings of $2.30 per share, beating consensus estimates for $2 per share. The drugmaker also raised its dividend from $0.95 per share to $1.01 per share, a 6.3% increase.
“The fundamentals of Johnson & Johnson are strong,” said CEO Joseph Wolk. “Once this pandemic abates, everything is still in line for us to get back to where we thought, and where folks thought, we would be.”
Looking at the chart for XLV, Baruch said, “You’re seeing a very, very good chart setup” as the ETF moves through its 50- and 200-day moving averages, which is typically a constructive sign.
“It’s really chewed through a pocket of resistance between $90 and $95,” Baruch added.
While the sector as a whole is on the rise, Federated Hermes’ Steve Chiavarone said investors should look for individual stocks rather than investing in an ETF.
“You really want to be doing things more selectively with active management,” Chiavarone said. “I think that this crisis has, in a lot of ways, put pressure on weaker business models while also, the economy coming out of this, while we think it can be very strong, it is going to be different. There’s going to be winners and losers.”
“We think it really is a stock picker’s environment, not just in health care but, quite frankly, across industries. You don’t want to own everything right now,” Chiavarone continued. “You want to be able to choose amongst those companies that are well positioned for the economy going forward and those that may be under some more pressure. So we would definitely err towards the side of individual stocks.”
As for individual stocks in the sector that are worth a look now, Baruch has his eye on three names.
“There’s a few individual names I like, everything from Bristol-Meyers to Amgen, but today, I’m going to focus on AbbVie because I think that the fundamentals there are a bit better than some of the others,” Baruch said. “You’re getting a 6% dividend. You’re also avoiding the very high [price-to-earnings multiple].”
While Baruch admits the “chart still has some work to do,” he pointed out “a down trend line that it’s moving through. There is a trend line that it broke down below previously. It still faces a 50-day moving average. So all in all, there is a lot of resistance between $81 and $85 in this name, and I think once it gets through there and the broader sector gets through there, this could be a leader to the upside.”