Health care plan stocks joined a market relief rally Monday after coronavirus fears caused U.S. benchmarks to suffer their worst one-week performance since the 2008 financial crisis. Attention now immediately shifts to Super Tuesday – a day that decides roughly one-third of delegates in the Democratic Party presidential primaries.
Polls predict front-runner Bernie Sanders to walk away from today with more than 400 delegates, about double the number for Joe Biden – which would give the universal healthcare advocate an near unassailable lead in the race to the 1,991 delegates needed to win the democratic nomination for president.
If the results play out as expected, look for heightened volatility in health insurance stocks as Sanders' bid for the White House gathers momentum. While polling data shows the Vermont Senator leading President Donald Trump in a head-to-head contest, some investors favor the incumbent.
"Many clients have expressed the view that President Trump would be a large favorite in such a contest," wrote Goldman Sachs analyst Ben Snider in a note, cited by Barron's. Snider pointed to Trump's improving approval rating and the relatively solid performance of health care stocks for his clients' sentiment amid a commanding Sanders lead.
Traders who follow health care plan stocks should add these three industry leaders to their watchlist as results from Super Tuesday roll in. Let's look at each company in more detail and analyze the charts to identify possible trading ideas.
UnitedHealth Group Incorporated (UNH)
UnitedHealth Group Incorporated (UNH) offers employer-sponsored, self-directed, and government-backed insurance plans to roughly 50 million members. The health care services colossus recently unveiled a new plan that directs members to its doctors in exchange for lower premiums. As of March 3, 2020, UnitedHealth shares have a market capitalization of $259.07 billion and are trading 13.27% lower on the year. Investors receive a 1.69% dividend yield.
After a brutal week of selling, the health insurer's share price found vital support near a closely watched horizontal trendline at $255. Given the relative strength index (RSI) shows a reading below 50, the stock has ample room to add to recent gains as the primary results come in. Traders who buy at current levels should look for a test of crucial overhead resistance at $300 while managing downside risk with a stop-loss order positioned below $260.
CVS Health Corporation (CVS)
With a market value of almost $85 billion, CVS Health Corporation (CVS) offers its 23 million members health insurance and prescription drug plans. The pharmacy giant, through its $69 billion merger with managed health care firm Aetna in 2019, continues to position itself as a new health care powerhouse. CVS Health stock issues a 3.38% dividend yield and has shed 13.14% year to date (YTD) as of March 3, 2020.
Buyers defended the $60 support area yesterday, pushing the stock up over 8% in a move that could trigger further bullish momentum in subsequent trading sessions. Those who enter here should think about setting a profit target near $76 – a level where price has topped out on several occasions over the past year. Consider placing a stop order underneath yesterday's low at $59.86 to protect capital. The trade offers a favorable risk/reward ratio of almost 1:3, assuming a fill at Monday's $64.03 closing price ($4.17 risk per share vs. $11.97 profit per share).
Cigna Corporation (CI)
Cigna Corporation (CI) provides pharmacy benefit management and health insurance services in the United States as well as internationally. The $72.16 billion Bloomfield, Connecticut-based health care firm primarily targets employers through self-funding arrangements but also operates in government programs. Cigna's fourth quarter adjusted earnings came in at $4.54 per share, marking the fourth consecutive occasion the company has exceeded analysts' bottom-line expectations. Although the stock has fallen 4.96% so far this year, it has outperformed the average health care plan stock by 3.4% as of March 3, 2020.
A confluence of support at the $180 level from a 12-month horizontal line and the 200-day simple moving average (SMA) has acted as a line in the sand between the bulls and bears. The stock's strong rally from this area indicates that the buyers have regained control and may continue to drive price higher. Traders who take a long position should book profits on a rise back up to the YTD high at $224.64 but cut losses quickly on a reversal below intermediate support at $185.