In today’s IBD’s Screen of the Day, we look for stocks with relative strength lines at new highs, with an eye for stocks still forming bases. The Health care sector has been flying under the radar as energy, banks, commodities and technology names have seen drastic moves. Nevertheless, many health care stocks are in a promising position.
Furthermore, health care represents the only defensive sector that is also relatively immune to inflationary risks.
These are some of the top names in the screen to keep an eye on. It’s considered bullish when the relative strength line makes new highs before the stock does.
Shares of CVS Health (CVS) have been showing relative strength. The pharmacy chain — operating almost 10,000 locations nationwide — had a strong year in 2021. CVS also owns Aetna managed care.
EPS increased to $8.40 from $7.50 a year prior. Revenue for the year also increased 8.7% from 2020. Over the year, CVS administered 59 million Covid-19 vaccines. Strong results allowed CVS to increase its dividend 10% and pay down a massive $2.3 billion of debt. This will help insulate CVS from rising interest-rate expenses and inflationary pressures.
Despite strong results, guidance for the company has remained soft going forward, with EPS expected to decline slightly to $8.27 in 2022.
UnitedHealth Could Benefit from Rising Yields
The health care insurer is well insulated from inflationary pressures and may in fact benefit from rising rates. The company currently projects that a 1% rise in interest rates will result in an additional $183 million in income.
The company’s three-year EPS growth rate is 12%. This growth is expected to continue, with EPS projected to increase 30% over the next two years.
The company remains in a relatively strong position to combat rising inflation. The majority of its drugs, such as Humilin — used to produce insulin for people suffering from diabetes — are essential. Furthermore, over the past year the cost of goods sold as a percentage of revenue actually dropped, showing inflationary pressures have not thus far impeded the company.
Eli Lilly stock is forming a cup base with a 284 buy point, per MarketSmith.
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