Invest With the “1 Percent”: Healthcare Stocks

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A growing theme of “haves” and “have nots” has been spreading through the market of late, as correlations among many of the major indices and ETFs are splintering.

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The situation warrants some concern as the market will have a battle on its hands to advance higher with lackluster breadth. That said, the dwindling correlation offers opportunities for those looking to invest in the remaining market leadership or what we refer to as the “1 percent.”

Healthcare stocks — as represented by the Health Care SPDR (XLV) — have been among the strongest leaders of the past three years. XLV units have more than doubled the S&P 500’s gains since June 2012. But despite the strength, there’s a growing divide between the leaders and the laggards, and the sector is showing some signs of tiring.

For instance, only five of XLV’s 56 components are posting new 12-month highs — a number that has been on the decline lately, and rates healthcare stocks in the middle of the pack for breadth.

But the solution is simple, at least. Investors need to stick with the “1 percent.”

The “1 Percent” in Healthcare Stocks: Waters (WAT)

1 percent water corp wat stock

Medical equipment manufacturer Waters (WAT) has been tearing up the healthcare sector, posting 28% one-year gains and nearly 20% returns year-to-date, outpacing most of its peers. More recently, WAT stock has been consolidating at the $135 level for the past three weeks in prep for its next push higher.

Investor sentiment remains pessimistic, which is good as it signals that the crowd has not become overloaded with bandwagon investors — yet. Nonetheless, Waters has been on the “1 percent” radar, as average volume has been on the rise amid stagnant volume for the broader market.

Low analyst ratings mean that downgrade risk is low, while upgrade probability is high — a situation we prefer on longer-term investments.

Watch for WAT shares to continue outperforming other healthcare stocks during the next few months. We’re targeting a price of $150, or about 13% higher from here.

The “1 Percent” in Healthcare Stocks: Amicus Therapeutics (FOLD)

The "1 Percent" in Healthcare Stocks: Amicus Therapeutics (FOLD)Amicus Therapeutics (FOLD) is a biotech company that discovers and develops medicines for rare and orphan diseases. Amicus has been making a number of balance sheet and management changes of late as they move forward with the development of its Fabry disease monotherapy.

Technically, the shares have seen a spike in volatility with the announcement of a secondary offering of shares, but the intermediate- and long-term trends remain strongly bullish and the stock recently hit new 12-month highs. The current pullback should result in a buying opportunity.

Sentiment is mixed, though that paints some upside potential as short interest sits above six times the average daily volume. Short sellers likely will take the current dip in prices as a confidence booster to increase bets against the company, though we see this as an increasingly bullish situation — after all, it increases the odds for a short covering rally.

Watch for support at $13.80-$14 as a buying opportunity and a breach back above $4.60 as a trigger price for the short-covering rally for this “1 percent” stock to make another run. Our current target is $16, or roughly 15% higher from here.

The “1 Percent” in Healthcare Stocks: Regeneron Pharmaceuticals (REGN)

The "1 Percent" in Healthcare Stocks: Regeneron Pharmaceuticals (REGN)Regeneron Pharmaceuticals (REGN) shares punched through to the $540 level and new highs last week as the stock continues to outpace other healthcare stocks to earn its “1 Percent” title.

Sentiment on this relative strength leader is still showing signs of pessimism as analyst recommendations remain below 70% buys and short interest has been on the rise. This lackluster sentiment tells us that the shares have room to run higher.

According to the charts, REGN shares should pick up support at the $480 level from its bullishly trending 50-day moving average. A move to this price will signal a “healthy pullback” of the shares and provide a good entry for traders looking to participate in further upside for REGN.

As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/06/healthcare-stocks-1-percent-wat-fold-regn/.

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