Two High-Yield Healthcare Picks

05/12/2014 11:20 am EST


Thomas Aspray

, Professional Trader & Analyst

With the markets remaining choppy in the intermediate term, MoneyShow’s Tom Aspray focuses his attention on a couple of high-yielding drug stocks that appear to have completed their corrections.

The new closing high in the Dow Industrials on Friday was consistent with my view from last month’s 4 Dow Stocks Under Accumulation that money was flowing into the large-cap, high-yielding stocks.

Of course, the question is how long can this outperformance last? Many are still trying to accept the fact that the utilities have been the best-performing sector in 2014. As I discussed in my review of Barron’s big money poll, this sector was the least-favored last fall by this group and this did not change in the most recent poll.

In the 52 years ending in 2012, dividends made up more that 60% of the real stock market returns. The recently recommended Vanguard Total World Stock Index (VT) has a current yield of 2.32%, which compares well with 2.62%—the historically low yield of 10-year T-notes.

The healthcare sector has been a favorite since 2012 when it broke out of a ten-year trading range. The Select Sector SPDR Health Care (XLV) has been a long-term portfolio holding since the fall of 2012. These two drug stocks have attractive yields and appear to have completed their correction, so they should be considered for your portfolio.

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Chart Analysis: Select Sector SPDR Health Care (XLV) made its high of $60.28 on March 6 and dropped to a low of $55.39 on April 14. This was a decline of 8.1% from the highs.

  • It is 90% invested in giant and large-cap stocks according to Morningstar with 12.8% in Johnson & Johnson (JNJ) and 8.3% in Pfizer Inc. (PFE). It has a current yield of 1.5%.
  • For the past two weeks, XLV has been in a tight trading range as it has been moving above and below its quarterly pivot at $57.74.
  • The daily starc- band is at $56.13, there is chart support at $55.60 with the quarterly projected pivot support at $55.21.
  • The relative performance shows a potential bottom formation, line g.
  • The RS line has key resistance at line f.
  • The on-balance volume (OBV) is acting much stronger as it moved through resistance at line h, in late April.
  • The OBV has continued to improve and is well above its WMA.
  • More importantly, the weekly OBV closed at a new all-time high last week.
  • Initial resistance is now at $58.57 and then at $59.49

Abbott Laboratories (ABT) reported rather weak earnings in the middle of last month but made its recent low on April 11 at $36.65. It has a current yield of 2.3%.

  • The slightly rising 20-day EMA is at $38.54 with the monthly pivot at $38.24.
  • ABT had a weekly close above its quarterly pivot of $37.99 on April 17.
  • The monthly projected pivot resistance is at $39.79, which is very close to the daily starc+ band.
  • The weekly starc+ band is at $41.11.
  • The daily relative performance moved above its WMA two weeks ago and has just broken its downtrend.
  • The daily OBV dropped below its WMA in early March but now appears to have bottomed.
  • The OBV shows a shallow uptrend, line l, and is above its WMA.
  • The weekly OBV (not shown) is now testing its WMA.

NEXT PAGE: 1 Drug Stock to Consider


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Bristol Myers Squibb Co. (BMY) barely beat earnings when it reported at the end of April but missed on revenues. The stock made its low at $48.26 in reaction to its earnings and it has a current yield of 2.80%.

  • BMY has closed above its rising 20-day EMA for the past four days.
  • The quarterly pivot is at $51.96 with the monthly projected pivot resistance at $52.27.
  • The 61.8% Fibonacci retracement resistance is at $53.43.
  • The daily relative performance moved through its WMA and the downtrend (line c) last week.
  • This completed a bottom formation, line d, suggesting BMY is becoming a market leader.
  • The OBV has formed higher low, line f, and needs to overcome its downtrend, line e, to complete its bottom formation.
  • The weekly OBV and RS lines (not shown) have turned up but are still below their WMAs.
  • There is initial support now in the $49.85-$50.44 and the 20-day EMA.

What It Means: Though both Abbott Laboratories (ABT) and Bristol Myers Squibb Co. (BMY) need another strong week to confirm a new uptrend, they look similar to Baxter International Inc. (BAX) that was recommended in early March. It is now up over 9%.
How to Profit: For Abbott Laboratories (ABT), go 50% long at $38.73 and 50% long at $38.35, with a stop at $37.17 (risk of approx. 3.5%).

For Bristol Myers Squibb Co. (BMY), go 50% long at $50.88 and 50% long at $50.04, with a stop at $48.07 (risk of approx. 4.7%).

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