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This morning, I am recommending a bullish trade on Baxter International Inc. (NYSE:BAX), the renal and hospital product provider.
My indicators are giving bearish to neutral readings this week, a downgrade from last week’s bullish to neutral readings. However, I am leaning towards the bullish camp again this week. After all, the S&P 500 was trading at a new all-time high only a few days ago.
BAX is a good choice for a bullish play because the healthcare sector is relatively undervalued. As you can see in the chart below, the Health Care Select Sector SPDR Fund (NYSEARCA:XLV), unlike the broader market, hasn’t made new highs this year.
Daily Chart of the Health Care Select Sector SPDR Fund (XLV) — Chart Source: TradingView
The XLV is in the process of consolidating just under its all-time highs, and I’m expecting it to continue its long-term uptrend eventually. I think investors should take a look at this sector to find some bargains.
BAX, along with other dialysis companies, is in the news because of an executive order from President Trump, and now is a good time to take advantage of the bullish momentum.
Growth Opportunity in Home Treatment Market
Last week, President Trump signed an executive order to overhaul the United States’ kidney treatment industry. The order is partially meant to encourage patients to seek home treatments rather than more expensive care at treatment centers.
When the order was announced, investors reacted poorly. Davita, Inc. (NYSE:DVA), a major kidney treatment provider, dropped 5%. However, after the order was signed, the sector rebounded.
Companies like BAX are already developing home treatment systems, and that means this order provides them a big opportunity for growth.
Breaking Above Resistance at Just Under $83
BAX has established support at around the $81 level, and the initial pessimism around the president’s executive order didn’t push it below that price. A little over a week later, the stock is starting to push above resistance at around the $83 level, though only slightly.
Daily Chart of Baxter International Inc. (BAX) — Chart Source: TradingView
BAX set a new 52-week high this week, meaning it’s outperforming the rest of its sector. It also has an earnings report coming up next week, and the recent optimism around kidney dialysis stocks may convince investors to push BAX higher before then.
I recommend buying a bullish call option to take advantage of the situation.
Buy to open the Baxter International Inc. (BAX) Nov. 15th $87.50 Calls (BAX191115C00087500) at $1.80 or lower.
InvestorPlace advisor Ken Trester brings you Power Options Weekly, which delivers 5 new options trades and his latest trading advice to you each Friday. Trester has been trading options since the first exchanges opened in 1973 with a winning streak that goes back to 1984 with money-doubling average annual profits since 1990.
