The media tends to focus on high profile, flashy tech stocks so old school healthcare stocks like Pfizer (NYSE:PFE) , Johnson and Johnson (NYSE:JNJ) and UNH (NYSE:UNH) tend to fade out of focus. Instead, tickers like Beyond Meat (NASDAQ:BYND) and Zoom (NASDAQ:ZM) hog the headlines.
But this doesn’t mean that the older tickers are not good stocks to buy. In fact, all three — PFE, JNJ and UNH stocks — are a BUY at or near current levels. And therein lies today’s opportunities.
But first we have to set the overall markets. The fundamentals still favor the bullish thesis because we still have full employment and the global central banks are committed to feed the stock bulls. Money is cheap and the stock prices are high so this is perfect for a new season of buyouts and mergers.
But the healthcare stocks are a special bunch. They have always had the curse of the headlines. Their stocks have a history of surprise headlines. Case in point that today we woke up to a bid from AbbVie (NYSE:AGN) to buyout Allergan (NYSE:AGN). And yesterday it was a 6% dip in BMY on its own headlines.
But ultimately, the stock specific fundamentals cannot be denied. All three healthcare stocks are cheap and will be higher in the future. If markets are higher then PFE, UNH and JNJ will also be higher. So the specific entry points in any of them depends heavily on personal time frame and portfolio balance.
Today I will review the long term trajectory of each of them and then identify the short term trigger and pitfall lines. This is important because in general, the healthcare stocks tend to trade together so these will move in sympathy of other’s movements. So the short-term action may be violent, but the long-term thesis should remain intact after the headline shocks fade.
United Health (UNH)
So far UNH stock is flat year to date. The S&P 500 is up 17% and near all-time highs and the Health Care Select Sector SPDR Fund (NYSEARCA:XLV) is up 7% for the same period. But UNH is a cheap stock as it sells at a 19x trailing P/E ratio and only one times its sales. So owning the shares at these levels is not likely to be a colossal financial mistake. Besides UNH also pays a respectful 1.7% dividends.
This drag on the United Health stock is a recent phenomena so it wasn’t always the case. In the last two years, UNH stock is up almost twice that of the XLV and 40% better than the S&P 500. Over the past five years this is even more pronounced: UNH is up 200% which is at least five times better than the other two benchmarks.
So it is safe to assume that unless UNH management forgets how to execute on plans, if equity markets in general are up then so is UNH.
Long term, the zone around $245 per share has been pivotal for UNH stock since early 2018. It was both resistance and support at different times and now the bulls are trying to retake it. This current ongoing effort comes with higher lows attacking the neckline. If they can prevail over the bears then they can overshoot and retest $270 per share or higher.
The second healthcare stock worth owning here is Pfizer. This is a dinosaur in the field, yet it avoided extinction. Moreover it continues to thrive. Case in point that a week ago they announced their bid to buy Array Biopharma (NASDAQ:ARRY) for almost $11 billion in an all cash deal.
This is an old dog that is pulling out stops to expand their oncology portfolio specifically against colon cancer. PFE is the biggest U.S. drug maker so it can afford to make big moves. They have a healthy business that affords them to take necessary risks to remain relevant.
PFE is a little more expensive than UNH with a 23 trailing P/E ratio, but given the value of its franchises it’s definitely not bloated. Owning it for the long term has been a winning proposition.
For the past two years, Pfizer stock is up 30% which is 40% better than the S&P 500 and double that of the sector. Clearly management is doing the right things to stay competitive. This is even before considering that the PFE dividend is almost double that of UNH. So overall, owning PFE stock is not a mistake at these levels.
So it comes down to finding suitable entry points. Those who like to hold stocks for the long term need not wait for the perfect entry point. This is as good a time to buy some shares. It is noteworthy that it’s close to the highs so it could see some downside pressure. But there is plenty of support below at several stages starting at $42, $40.50 and $38 per share.
Shorter-term traders may want to note that there is a chance that the bulls could have triggered a bullish pattern above the 43.50 neckline. In theory there is a chance that the rally could extend up to $40 per share. If that happens then PFE stock would be close to all-time highs.
Johnson & Johnson (JNJ)
The December correction was extremely hard on JNJ stock. It fell 10% in one day and 15% in about a week. Luckily, JNJ managed to recover almost all of it and in a healthy way. I say this because we often see a “V” correction that leaves a lot of froth in the stock. JNJ has had a few violent headline jolts that it has already shaken out most of the weak hands.
So from here. it will take new incremental bad news to compound the selling in JNJ stock. This is an ancient company with a proven management team. It is almost of the same value as PFE ands also slightly more expensive than UNH on paper. But this also pays a bigger dividend so equity owners reap those reward while they wait for the capital appreciation.
By now, the effects of the talcum powder lawsuits are probably priced into the healthcare stock so there are no outstanding tangible risks looming. JNJ stock is close to the zone from which it fell hard in December and that usually creates resistance. Those investors who were stuck long since then may opt to sell to get out. This would be part of the normal price action of any stock.
The JNJ bulls just crossed the $142 per share neckline. Onus is on them to prove they can use it as ongoing support. If that’s the case then they have a good chance of filling the open gap to $147 per share. And that brings price close to another potential gateway to an even bigger rally.
So if I am long JNJ I stay in it to see this potential breakout through. For a short-term tactical trade I could buy it at $143 and set a stop loss below $139 per share. But this is a matter of personal preference of time frames and risk tolerances but the levels are clear.