Healthcare Story Continues to Show Promise

The healthcare sector has renewed the uptrend after a two month consolidation period. As reports emerged about higher premiums and lower enrollments in the Affordable Healthcare Act investor worries rose and thus the stall. The enrollment period ended February 15th with positive results, as reported by the White House, and investors have returned to assist the upside leadership once again. It helped that earnings have been positive for the majority of the sector with the healthcare providers leading the way. Pharma stocks have equally been positive on the earnings side to help boost the confidence in the sector near term.

As a side note… is it odd that we are cheering the healthcare companies for making money when our insurance premiums are going through the roof? I made a comment in an update last week: if you intend to afford your coverage premiums you need to invest in the stocks. XLV, SPDR Healthcare Sector ETF was up more than 25% the last 12 months. When prices are rising along with profits within a sector I am a strong proponent of investing there to afford what they are selling.

The chart below is XLV showing the consolidation period. It is important to note that despite the volatility and sideways activity the rising lows on each test held the uptrend. The break higher last week above the $71.26 resistance level was a continuation of the previous uptrend. The long term trend remains on the upside and with this consolidation phase behind us we would look for a target of $75.60 short term.

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The leadership for healthcare off the recent test has come from the pharmaceutical sector (XPH). The move was up 11.4% off the February 4th test versus a 4.9% gain for XLV during the same period. It is always important to define the leadership within the sector. The pharma and biotech stocks continue to lead the upside as this move advances.

Breaking the sector down we find that the underlying long term leadership has been with the healthcare providers (IHF). The chart below is a weekly chart showing the rise off the 2011 low to current. With the Affordable Care Act in full swing the upside to the providers remains a plus as they are now guaranteed payment on services previously not collected. I like this component of the overall healthcare sector and would use any test or pullback as an opportunity to add to my position.

Chart

 

The global healthcare (IXJ) has equally done well over the long term charts. The challenges and opportunities that a aging and growing population directly benefits the sector regardless of where in the world it may be. Don’t forget this sub-sector as being a viable alternative to investing with the story of growing profits and opportunities.

The REITs also offer opportunities in facilities for hospitals, long term care and offices. The need to house the elderly is a growing concern globally as well.

As you can see clearly healthcare is a great sector to own with a long term horizon and using consolidation or pullbacks in the sectors as an opportunity to add positions is something to watch as we progress towards fulfilling the needs of an aging world population.