After the big drop on Thursday, the S&P 500 managed to stay above its 200-day moving average on Friday. But thanks to weakness in the retail and travel sectors, it looks like the market is due for another pullback.
I mentioned the possibility of a pullback on Friday, but I still went with a bullish trade on a stock that stood to gain from a renewed demand for personal protective equipment. Today I’m looking at the other side of medical-adjacent stocks to recommend a bearish position on Varex Imaging Corporation (NASDAQ:VREX).
Wrong Segment of the Sector
Though medical products are necessary right now, VREX just isn’t in the right category.
The company manufactures X-ray imaging systems, which just aren’t the focus of most hospitals during this pandemic.
To raise money, the company sold $150 million in convertible debt, which doesn’t paint a good picture of its current state. That news sent it much lower just over a week ago.
The stock started to bounce higher as a general bullishness took hold of the market at the start of last week, but that general optimism wasn’t enough to prevent it from falling with the rest of the S&P 500 last Thursday.
No Support at Current Levels
VREX only went public in 2017, and the company is lower than it has ever been.
Without any support to fall back on, investors have to look at its fundamental performance, and its last earnings report in May doesn’t make it look very appealing.
Daily Chart of Varex Imaging Corporation (VREX) — Chart Source: TradingView
VREX lagged both its earnings and revenue expectations in May, and while the future is unwritten, I don’t think investors are going to push a poorly performing company higher in this environment.
Buy to open the Varex Imaging Corporation (VREX) Aug. 21st $12.50 Puts (VREX200821P00012500) at $1.00 or lower.
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