Something new happened in the stock market yesterday following a month of steady gains: some names are breaking out.
Twenty three members of the S&P 500 made new 52-week highs on Monday. That was the most since April 21, according to TradeStation data. Six of them, more than one-quarter, were in the health care sector.
Technical analysts often view the number of stocks making new highs as a sign of internal strength. Companies entering new unchartered territory may have fewer holders wanting to exit unprofitable positions from weeks or months prior. This may result in less potential resistance, letting prices continue higher.
Investors may want to follow stocks hitting new highs because they may may become the new leaders. For example, stay-at-home stocks like Amazon.com (AMZN) and Netflix (NFLX) were among the first to break out after the March 2020 coronavirus drop. Along with other high-multiple growth names, they continued to outperform in the following months.
Today Market Insights will start reviewing companies hitting new highs. We’ll initially focus on health care because they’re leading the trend.
Cigna (CI) beat earnings and revenue estimates on August 4. The health-insurance company also guided full-year results above estimates. A big reason was the sharp drop in medical costs. CI paid 80.7 percent of premiums in claims, down from 84.4 percent a year prior. This so-called Medical Care Ratio (MCR) is a key driver of profit margins for health-insurance stocks.
CI is the largest of the companies hitting new highs on Monday, with a market capitalization of $88 billion.
Vertex Pharmaceuticals (VRTX) is the only drug maker on the list, although Amgen (AMGN) and Merck (MRK) are within 5 percent of their respective highs.
The biotechnology company beat earnings and revenue estimates on August 4. Management also raised full-year guidance thanks to strong demand for its cystic fibrosis treatment, known as Trikatfa/Kaftrio. Revenue for the drug combination increased by 51 percent last quarter.
Trikatfa/Kaftrio accounted for 86 percent of VRTX’s revenue last quarter. UBS said on July 23 that its pipeline of potential new products was underappreciated.
Humana and Centene
Humana (HUM) and Centene (CNC) are both health-insurance companies that beat estimates and raised guidance in late July.
HUM benefited from fewer patients using health-care services.
CNC enjoyed lower costs, plus growth in its Medicaid and Medicare businesses. The company is also abandoning physical offices to save $200 million a year.
McKesson and Cardinal Health
McKesson (MCK) is the largest company in this article by revenue. Its annual turnover of $268 billion ranks ninth in the S&P 500, according to TradeStation data.
MCK is a major distributor of drugs that’s benefited from the spread of coronavirus vaccines. Its last quarterly report on August 3 featured better-than-expected earnings and revenue, plus increased fiscal-year guidance.
Cardinal Health (CAH) beat revenue estimates and hiked its profit outlook on August 11. The Wall Street reported yesterday that activist investor Elliott Management has taken a large stake in the company and plans to nominate five directors.
MCK and CAH also reached an opioid settlement with cities and counties in West Virginia on August 1.
In conclusion, the market sentiment has improved lately as inflation worries fade. While most stocks have advanced, only a handful have broken out to new highs. We’ll continue to monitor the list in coming weeks to assess new areas of leadership as the summer winds down.