Healthcare Business

5 Health Care Stocks That Need to Play Serious Catch Up

2014 has been another amazing year for stocks, and now the bull market is closer to being six years old and stocks have risen some 200% from the inflection bottom in March of 2009. Health care is not a sector that would be considered a market leader in most bull markets, but the S&P 500’s 50 or so health care stocks have led the charge in 2014 and over the past year. However, that trend has abated in the past month, since the market recovery came on strong, due in part to five large laggards holding back the sector gains.

24/7 Wall St. has identified five of the lowest performing health care stocks over the past month which need to catch up to peers. In the hospital sector, we have shares of Tenet Healthcare Corp. (NYSE: THC) and Universal Health Services Inc. (NYSE: UHS), which held back the health care sector’s gains in the past month. Biotech giant Gilead Sciences Inc. (NASDAQ: GILD) has suffered profit taking after earnings, and concerns about competition seem to be weighing on Biogen Idec Inc. (NASDAQ: BIIB). DaVita HealthCare Partners Inc. (NYSE: DVA) has also been a laggard after earnings, despite news of a key insider increasing its stake.

Had these five performed better, health care would have again led the way. After all, the services sector is up about 8.0% in the past month, versus over 6.5% for health care. With health care leading the way in 2014, the gains for the sector have been as follows: 6.5% over the past three months, 12.7% over the past six months, 21% year to date and 25.5% over the trailing 12 months, according to FINVIZ.com.

So, an election that has been deemed very bullish for most market sectors should in theory also allow the run in some health care components to continue. The markets have gotten more global easing and quantitative easing as support, and the inevitable rising rate environment in the United States just seems to keep being minimized and pushed further out. Still, it is surprising that health care stocks have led the charge in 2014. Did healthcare become a much more interest rate and global-easing dependent sector all of a sudden?

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What is interesting is that had these five top health care stocks maintained their momentum then health care would again be the top performing sector. Some of these laggards over the past month have done really well this year, but none of them are still in the top 10 of the 50 S&P health care sector stocks.

Tenet Healthcare
> Share price: $47.50
> 52-week range: $37.95–$63.61
> Past month performance: -18%

Tenet Healthcare Corp. (NYSE: THC) saw its shares drop at the beginning of November as it reported earnings that met expectations on the bottom line. The asset-impairment costs and discontinued operations may have lowered the earnings reaction. That being said, hospitals in general may not get to keep pillaging and plundering, if audit functions are increased or if enrollment of Obamacare keeps getting dialed back.

If you look at the long-term chart over four years, some might be concerned that the stock is on the wrong side of a nearly perfect head and shoulders chart pattern. Tenet was a $20 stock in mid-2012. At $47.50 now, its consensus analyst price target is up at almost $66, and the highest analyst price target is all the way up at $75.

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