My weekend scanning revealed one prominent theme: The healthcare sector is one of the strongest on the Street making many of its constituents the best stocks to buy for the week ahead.
While the reasons for outperformance are myriad, one of the most important in this volatile landscape is its reputation as a defensive sector. Alongside consumer staples and utilities, the healthcare space doesn’t rely as much on economic strength as offensive sectors. Furthermore, because its holdings are less volatile, they qualify as potential safe havens during market turmoil.
The three ideas below are all perched at or near 52-week highs.
Eli Lilly (LLY)
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Short of a few trading sessions, Eli Lilly (NYSE:LLY) has remained north of its 50-day moving average throughout the entirety of the ongoing market correction. I find its resilience in the face of missing earnings estimates during its recent quarterly report particularly impressive.
Most stocks have been punished this earnings season for daring to disappoint the Street. The fact that LLY stock was able to bounce back so quickly after its earnings miss is worth noting.
The base that has formed over the past two months looks healthy. And with LLY now approaching the upper end, a breakout appears likely.
Profit from this price action by buying the Jan $115/$120 bull call spread for $2.
Merck (MRK)
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Merck (NYSE:MRK) shares have been virtually untouched by the market’s temper tantrum. The few dips that cropped up were rapidly bought showing just how strong the bid beneath the surface has been. With Friday’s high volume rally, MRK stock jumped to fresh 18-year highs.
Volume patterns are supporting an optimistic view with numerous accumulation days forming after last month’s earnings report. With moving averages of all time frames rising across the board, there’s nothing standing in the way of continued gains here.
Here’s the play: Buy the Jan $75/$80 bull call spread for $2.10.
Pfizer (PFE)
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Pfizer (NYSE:PFE) rounds out today’s trio with a robust basing pattern. Its weekly trend increased in momentum during this year’s multi-month rally, which makes me want to be a buyer into any weakness.
While the rest of the market has been plumbing the depths, PFE stock has been treading water. The neutral action is allowing it to digest the recent gains and build a clean base to launch from during its next ascent.
At $44, Pfizer currently in the middle of its trading range. I suggest waiting for a break above $44.75 to signal a new advance has begun before deploying bullish trades. Consider buying Jan $44 calls at that time.
As of this writing, Tyler Craig didn’t hold positions in any of the aforementioned securities. Want insightful education on how to trade? Check out his trading blog, Tales of a Technician.
