There May Be More Upside for These 2 Healthcare Stocks

Healthcare stocks have historically outperformed in May, and McKesson and Regeneron Pharmaceuticals could be two stocks that outperform

May 4, 2017 at 11:37 AM
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We've been taking a hard look at the healthcare sector ever since we examined the best stocks to buy in May. Healthcare stocks -- and, as a result, healthcare exchange-traded funds (ETF) -- dominated the list. More promising data has come through for the sector, thanks to our internal sector scorecard, compiled by Schaeffer's Senior Quantitative Analyst Rocky White. Digging even deeper, two healthcare stocks that could be poised for short-term gains are drug distributor McKesson Corporation (NYSE:MCK) and drugmaker Regeneron Pharmaceuticals Inc (NASDAQ:REGN)

McKesson, Regeneron Fare Well in May

By the numbers, 89% of the stocks we track under our "healthcare" umbrella are trading above their 80-day moving average, the highest of all the sectors we cover. What's more, these stocks sport an average year-to-date return of 21.5%.

MCK has been the best S&P 500 Index (SPX) stock to own in May, going back 10 years. The security has averaged a one-month gain of 7.8%, and ended higher 90% of the time. REGN has also ended the month positive nine of the past 10 years, sporting an average monthly return of 6.75%. 

Will MCK Stock Burn Short Sellers? 

Looking at the data behind MCK, there's plenty of skepticism to be found. Most notably, short interest has been grinding higher throughout 2017, including a 13.2% increase over the past two reporting periods. A similar bearish trend has been growing in the options pits, too, according to data from the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX). MCK has racked up a 10-day put/call volume ratio of 3.61 across these exchanges, which ranks in the 94th percentile of its annual range. 

Considering McKesson stock's long-term price action, it's hard to blame these bears, as the shares have suffered sharp losses since hitting a record high of $243.61 back in mid-2015. But recently, MCK has seen strong support from the $135 area, and today has gained 2.7% to trade at $141.94, on pace for its first close above the 20-day moving average since March. If the the stock can replicate its past May strength, an unwinding of pessimism could fuel additional gains. 

REGN Stock Surges On Earnings

REGN is set to extend its streak of positive Mays, considering the stock has rallied 5.2% today to trade at $428.23, thanks to strong first-quarter sales. This price action is nothing new for the shares, however, as they're now up over 10% month-to-date, blowing past recent resistance at the round $400 level. REGN stock could now be heading back to the $440-$450 range, where its last two rallies topped out. 

These gains may prompt some analysts to raise their outlooks for the stock, which could result in additional upside. For instance, 10 of the 18 brokerage firms tracking Regeneron stock say it's just a "hold." Plus, the shares have pushed past their average 12-month price target of $417.38. It wouldn't be surprising to see upgrades and/or price-target hikes come through, especially considering the company's strong quarterly results and well-received Eylea forecast. 

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