2 Healthcare Stocks That Could Heat Up

Intuitive Surgical is one of only three SPX stocks that was higher after the past four Fed rate hikes

Dec 18, 2017 at 1:42 PM
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The shares of healthcare insurer Centene Corp (NYSE:CNC) are higher today, and are on the cusp of toppling the century level, thanks to some upbeat analyst attention. What's more, CNC stock could have even more gas in the tank, if past is prologue. Meanwhile, Intuitive Surgical, Inc. (NASDAQ:ISRG) stock is down 0.2% at $369.09 today, but could also be headed for a bounce. Below, we'll explain why CNC and ISRG shares should be on your radar right now.

Analysts: Tax Plan to Be Positive for Centene

CNC stock is up 3.2% at $97.91, after Jefferies waxed optimistic on the insurer's investor day update. The brokerage firm said Centene should produce attractive revenue growth over the long term, and lifted its price target on CNC stock to $115 from $112 -- in uncharted territory. In addition, Piper Jaffray said Centene is the best buying opportunity in the group, and hiked its price target even higher into record-high territory, to $134. Both brokerage firms also said they expect the GOP tax plan to be positive for the insurance issue.

On the charts, CNC shares have roughly doubled since their November 2016 lows, with pullbacks contained by their 80-day moving average. The security came close to this trendline on Friday, after notching an all-time best of $103.51 two weeks ago, suggesting now could be an opportune time to jump in on the longer-term rally.

What's more, despite Centene stock's rapid advance, short interest swelled more than 24% during the past two reporting periods. With almost 4.5 million CNC shares now sold short, the bullish bandwagon is far from crowded. A short squeeze could add fuel to the equity's fire.

Not to mention Centene stock has been among the best to own after Fed rate hikes, according to recent data from Schaeffer's Senior Quantitative Analyst Rocky White. The shares were higher a month after three of the last four rate hikes, averaging a healthy gain of 4.86%. So, if recent history repeats, CNC could be headed back toward record highs in no time.

ISRG Stock Among Best to Own After Rate Hikes

Likewise, Intuitive Surgical has been among the best stocks to buy after the Federal Reserve lift rates. In fact, ISRG is just one of three S&P 500 Index (SPX) members that was higher a month after each of the past four rate hikes. The stock has averaged a one-month, post-rate-hike gain of 3.53%, per White. From the equity's Dec. 13 close of $371.08, another 3.53% gain in the next month would place ISRG around $384.18 in mid-January.

From a longer-term perspective, the medical device maker has rallied nearly 75% in 2017. However, since touching a record best of $405.05 in late November, the shares have pulled back to test the support of their own 80-day moving average.

Amid ISRG stock's dip, options traders have been upping the bearish ante. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 1.27 is in the 87th percentile of its annual range, demonstrating a much bigger-than-usual appetite for ISRG puts over calls in the past two weeks. Should the equity once again prove its post-Fed mettle, an unwinding of pessimism among options traders could be a boon for Intuitive Surgical shares.

Regardless of motive, ISRG stock has rewarded premium buyers over the past year. The stock sports a healthy Schaeffer's Volatility Scorecard (SVS) of 92, indicating the shares have handily exceeded options buyers' volatility expectations in the past 52 weeks.




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