U.S. equities are under pressure on Tuesday morning, keeping the Dow Jones Industrial Average below its 50-day moving average. Geopolitics and the lack of legislative action on tax reform and healthcare fixes remain a concern, but the main catalyst for the decline is the increasing flow of Q1 earnings results and an ongoing batch of weak economic data.
Healthcare stocks in particular are under pressure after a major sector component wet the bed, so to speak, with a revenue miss.
As a result, the Health Care Select SPDR (NYSEARCA:XLV) exchange-traded fund of healthcare stocks has collapsed below both its 50-day moving average and lower Bollinger Band, it’s first confirmed sector downtrend since last August. This comes after the XLV bonked its head, once again, on overhead resistance going back to 2015. The three-year-long sideways crawl — bounded by $76 on the high side and $62 on the low side — capped a massive 300%-plus rally out of the 2009 low.
All of that is a long way of saying that healthcare stocks broadly are starting to crack, and a number of blue-chip names are in that number. Here are four stocks in the sector that are on shaky legs. Consider shorting them, via options or straight-up, or even selling them outright.
Healthcare Stocks Falling Ill: Johnson & Johnson (JNJ)
Johnson & Johnson (NYSE:JNJ) shares are down 3.4%, returning to late February levels after losing their 50-day moving average. That’s more than a 6% decline from its mid-March high.
You can blame JNJ’s earnings for its decline, as well as the rest of the sector.
Johnson & Johnson reported a revenue miss this morning. Sales of $17.8 billion fell short of the $18 billion that analysts had estimated. While the relative size of the sales disappointment is small, expectations were extremely high after a near 20% rally out of the late January low.
Digging into the numbers, domestic sales growth was tepid (up 0.6% from last year), as were global drug sales (up just 0.8% from last year). Pricing pressures — especially in the cardiovascular and diabetes segments — hampered results as well, and in fact, J&J has been exploring exiting diabetes treatments.
Investors eyeing more downside should monitor the 200-day moving average at $118.
Healthcare Stocks Falling Ill: Merck (MRK)
Merck & Co., Inc. (NYSE:MRK) shares are continuing a decline that started in early March, down more than 6% from their high to return to the August-February trading range.
The decline began with the announcement from President Donald Trump on March 7 that he was working on a “new system where there will be competition in the drug industry” with the intent to pushing prices “way down.”
However, Johnson & Johnson’s miss isn’t doing much to buoy Merck’s spirits, either.
Merck’s own report isn’t for a couple of weeks, May 2 before the bell. Analysts are looking for earnings of 84 cents per share on revenues of $9.2 billion.
Healthcare Stocks Falling Ill: Celgene (CELG)
Celgene Corporation (NASDAQ:CELG) which develops treatments for cancer and inflammatory diseases, is threatening to break down out of a three-month consolidation range after hitting double-top resistance near $127.50. Watch for a cut below the 50-day moving average, which was last crossed to the downside back in January.
Stepping back, shares have been in a sideways funk since topping in 2015 — so the prospects for CELG didn’t look too healthy before this latest dip.
Celgene’s earnings report will come next week, on April 27. Analysts are looking for earnings of $1.64 per share on revenues of $3.04 billion.
Healthcare Stocks Falling Ill: AbbVie (ABBV)
Lastly, AbbVie Inc (NYSE:ABBV) — developer of treatments including Humira (for autoimmune diseases) — is threatening to break below its 50-day moving average for the first time since January after hitting resistance from its August high.
Barron’s recently cited ABBV as a company that could be at risk if Trump’s efforts to lower drug prices succeeds. That’s ironic, given the big post-election surge healthcare stocks like ABBV enjoyed after Trump won on the belief Hillary Clinton would’ve been more aggressive against high drug costs.
AbbVie is due up alongside Celgene on April 27, before the bell. Analysts are looking for earnings of $1.26 per share on revenues of $6.5 billion.