4 Large-Cap Healthcare Stocks To Watch

By Cory Mitchell | August 18, 2014 AAA

Healthcare has been one of the hottest sectors over the last year and continues to find new highs. The HealthCare Select Sector SPDR (XLV) was up 2.36% in the last week. That doesn't mean that every company is a good bet at any price, though. Here are four large-cap drug stocks to monitor for an entry point. 

Gilead Sciences Inc. (GILD) is charging at the $100 mark, closing at $99.49 on Aug. 15. Bursting out of small consolidation that contained the stock between the end of July to mid-August, being able to break and hold above $100 will be a major test for the stock. The trend is strongly up, and since $100 is considered a psychological pivot point, it can also be used as a short-term entry point. If the current price run reaches $105 or higher, look to buy a pullback to $100 with a stop a couple dollars below and a target beyond $105. If the price falters at $100, wait to buy a pullback to trendline support near $95 to $94; a stop can be placed below $90 and if the uptrend continues look for exit above $105. (For more, see: How Gilead Sciences Became a Big Name in Biotech.)

GILD entry point

Amgen Inc. (AMGN) has been moving in a trend channel higher through most of 2013 and 2014. Its share price could to continue to run toward the top of the channel near $135, although at current levels downside risk may outweigh upside potential. That said, if the price breaks above the channel it indicates a very strong price wave, potentially reaching $145. Until proven otherwise, the channel is the main technical feature to watch. If resistance holds near the top of the channel in the $135 region, hold off on buying until the price reaches the lower portion of the channel, near $120 with a stop several dollars below. (For more, see: Channeling: Charting A Path To Success.)

AMGN entry point

Covidien plc (COV) snapped higher almost 30% in mid-June to a high of $92.68, and has since pulled back. A rally above $88 will break the short-term downward trendline, and could mean another wave higher for the stock. If that scenario plays out, the target is just below $100. Initially, the stop loss can go below $82, but if a higher swing low forms the stop can moved to just below that. Strong moves higher, such as the one seen in June, have a tendency to "fill" given enough time. When that will occur is anyone's guess, but it's possible that the price will retrace all the way back to the $75 to $73 region. If and when that occurs, it should present another good buying opportunity. (For more, see: The Stop-Loss Order: Make Sure You Use It.)

COV entry point

Unlike the three previous stocks, Zoetis, Inc. (ZTS) isn't in a long-term uptrend. Going back to early 2013, the stock has been more range bound. Since April the stock has been rallying strongly though, and has cleared resistance in the $33.35 region. It also broke a descending trendline which marks the swing highs of the range. Therefore, it could be interpreted that this stock has already broken out, in which case it has a target of $35 to $37. The stock's all-time high is $35.42, so resistance is expected in that area. If the price manages to climb there, and then falters, it's probably best to take profits instead of trying to squeeze out a larger gain. (For more, see: Pfizer Readies Zoetis For Market.)

ZTS entry point

The Bottom Line

The healthcare sector remains strong and the S&P 500 in an uptrend. Even so, that doesn't mean buying these healthcare stocks at any price is a wise play. Consider the price in the context of larger patterns, such as trend channels (when applicable) or how the waves and pullbacks of a trend are playing out. Usually buying on a pullbacks offers a better reward-to-risk ratio because a stop can be placed below a recent low; when buying on new highs a stop loss area can be harder to find. No method of analysis or trading is perfect, so ideally risk only a small amount of your account on each trade, that way even a string of losses won't significantly draw down the account. (For more, see: Range-Bound Traders—Breakout Traders—Channel Traders.)

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