While healthcare is top of mind right now with the rise of the Wuhan coronavirus continuing, investors are pulling away from healthcare stocks in a big way. The Health Care Select Sector SPDR (XLV) is falling below its 20-day moving average, setting up a possible decline all the way back to its 200-day moving average near $92.
This is a move that would be worth a loss of more than 10% from here. It would return the sector to a two-year trading range driven in large part by worries over single-payer proposals by the candidates running for the Democratic Party’s presidential nomination.
Here are three stocks in the sector worth selling now as Bernie Sanders rises in the polls ahead of the Iowa primary, given his stance that prices should be cut in half.
Obviously, such an outcome would be bad news for healthcare industry investors. Thus, a number of stocks in the group are rolling over.
Bristol Myers Squibb (BMY)
Bristol Myers Squibb (NYSE:BMY) shares appear to be headed for a test of the 50-day moving average that has held its post-summer uptrend that saw prices rise more than 50%. On the surface, there is plenty of good news to be had.
The U.S. Food and Drug Administration accepted a priority review of the company’s application for the use of Opdivo plus Yervoy in the treatment of non-small cell lung cancer. Moreover, CEO Giovanni Caforio told CNBC in an interview earlier this month that the company is entering 2020 with great momentum and that patients pay 50% more on drugs (a criticism of Bernie and others) because of the way benefit plans are designed.
On Jan. 6, Citigroup analysts resumed coverage on the stock with a “buy” rating and a $73 price target. In December, Argus analysts upgraded to “buy” from “hold” and assigned a $80 price target. But with possible political changes on the way, these assumptions could be quickly outdated.
Biotechnology stock Amgen (NASDAQ:AMGN) is dropping hard out of a three-month consolidation range to return to levels last seen in November. Watch for a return to lows near the 200-day moving average near $200 that would be worth a loss of roughly 13% from here.
The Wall Street Journal recently profiled the company’s push to develop new drugs as old blockbusters lose their patent protection. In the interview, CEO Robert Bradway warned: “We’re operating in an environment that none of the leaders in our industry have ever experienced before.”
The ramp up in R&D could pay dividends but will pressure margins for now. The price pullback is coming despite some enthusiasm from analysts with both Goldman Sachs and Morgan Stanley assigning “buy” ratings lately.
Drugmaker Merck (NYSE:MRK) is suffering a big pullback back below its 50-day moving average, closing in on its 200-day average and threatening a reversal from its two-year-long uptrend. I expect prices to settle down in the low $80s, which would be worth a loss around 10% from here.
Again, the news flow has been positive for the company with momentum for its Keytruda cancer treatment that costs roughly $150,000 per year — exactly the kind of high-cost treatment Bernie wants to go after.
Analysts at RBC Capital Markets recently initiated coverage with a “neutral” rating.