Hospital stocks trail the S&P 500 by around 15% since the start of the year as plunging non-emergency admissions brought about by the pandemic have weighed heavily on industry profits. Despite voluntary hospital visitations likely to remain low amid rising COVID-19 case numbers over the winter months, the group stands to benefit from an influx of patients after coronavirus vaccines roll out as elective surgeries return and people make up for missed treatments.

Key Takeaways

  • An increasing number of elective surgeries look set to boost hospital profits in 2021.
  • HCA Healthcare, Inc. (HCA) shares have formed a mini ascending triangle near resistance, indicating that the price is preparing to push higher.
  • Community Health Systems, Inc. (CYH) shares have traded within a symmetrical triangle over the past four weeks after a sharp rally.

Below, we look at two leading hospital stocks and point out significant technical levels worth watching.

HCA Healthcare, Inc. (HCA)

HCA Healthcare operates general, acute care hospitals that offer medical and surgical services. Despite suffering a third quarter year-over-year decline of 3.8% in same facilities admissions and a 6.8% drop in inpatient surgeries, the healthcare provider reported a 4.9% jump in revenue during the period to $13.31 billion thanks to tighter cost controls relating to salaries, benefits, and operating expenses. Looking ahead, the leaner and more efficient hospital chain sits well positioned to capitalize on higher profit margins as it increases its patient intake next year. HCA Healthcare stock has a market capitalization of $53.87 billion and is trading 14.94% higher in the past month, outperforming the industry average by around 5% as of Dec. 9, 2020.

HCA shares have formed a mini ascending triangle near a period of two-year resistance at $147, indicating that the price is preparing for its next push higher. Moreover, the moving average convergence divergence (MACD) indicator recently crossed back above its trigger line to generate a buy signal. Those who enter here should consider using a trailing stop to let profits run. For instance, traders could remain in the position until the price closes below a fast period moving average, such as the 10-day simple moving average (SMA).

Chart depicting the share price of HCA Healthcare, Inc. (HCA)
TradingView.com

The moving average convergence divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of a security's price. The MACD is calculated by subtracting the 26-period exponential moving average (EMA) from the 12-period EMA.

Community Health Systems, Inc. (CYH)

With a market cap of $1 billion, Community Health Systems owns and leases general acute care hospitals located in non-urban and urban markets. The Tennessee-based hospital operator saw third quarter admission drop 13% from a year ago, contributing to a 3.7% decline in revenue for the period. However, the company posted a quarterly net income of 18 cents per share as lower expenses helped offset reduced patient volumes. Like HCA Healthcare, the trimmed-back medical facilities giant stands ready to grow profits as it ups elective surgeries after the pandemic. As of Dec. 9, 2020, Community Health Systems stock has gained 191% year to date but retraced 12.28% over the past month.

The share price has traded within a symmetrical triangle over the past four weeks after a sharp rally. Those who anticipate a continuation of the uptrend should think about using the measured move technique to book profits. To do this, calculate in dollars the leg higher that preceded the pattern and add that amount to the triangle's upper trendline. This projects a profit target of $14.99 ($6.22 + $8.77). Protect trading capital with a stop-loss order placed under the Nov. 3 low at $7.05.

Chart depicting the share price of Community Health Systems, Inc. (CYH)
TradingView.com

An uptrend describes the price movement of a financial asset when the overall direction is upward. In an uptrend, each successive peak and trough is higher than the ones found earlier in the trend. The uptrend is therefore composed of higher swing lows and higher swing highs.

Disclosure: The author held no positions in the aforementioned securities at the time of publication.