Skip to main content
number cruncher

What are we looking for?

U.S. health care stocks that are benefiting from a sector rotation.

Trading Central’s North American research desk is seeing momentum enter the U.S. health care sector, while the U.S. financials and energy sectors slip from leading to weakening, relative to the S&P 500 index, after a solid 12-week run. The Health Care Select Sector SPDR Fund (XLV), an exchange-traded fund we use as a proxy, has returned approximately 8.6 per cent over the past three months, making health care one of the top performing sectors in the U.S. market.

The screen

We will be using Trading Central Strategy Builder to search for U.S. health care stocks with fair valuations and a history of positive earnings growth.

We begin by setting a minimum market capitalization threshold of US$2-billion to focus on larger, more stable and established companies in the sector. Next, we will select only stocks with price-to-earnings ratios below that of the S&P 500 Health Care Index, which has a current P/E of 22.7. (The S&P 500 P/E is 29.8.) We will also look for stocks that are indicating a five-year annual earnings growth of at least 5 per cent to identify companies with a longer-term track record of earnings growth.

Finally, we will screen for companies with a TC Quantamental Rating greater than five. This proprietary metric rates stocks on a scale of one to 10, with 10 being the most bullish and one the most bearish. TC Quantamental Rating uses a combination of valuation, growth, quality, price momentum and income as key metrics when rating a company.

We have also included annual dividend yield, year-to-date and one-year price return for reference.

More about Trading Central

Trading Central is a global leader in financial market research and investment analytics for retail online brokers and institutions. Trading Central’s product suite provides actionable trading ideas based on technical and fundamental research covering stocks, exchange-traded funds, indexes, forex, options and commodities. Strategy Builder is available through leading retail brokers in Canada and worldwide.

What we found

U.S. health care stocks that are benefiting from a sector rotation

RankCompanyTickerMkt. Cap. (US$ Bil.) P/E5Y EPS Grth. Rate (%)Div. Yld. (%)TC Quant. RatingYTD Price Perf. (%)1Y Price Perf. (%)Recent Price (US$)
1HCA HealthcareHCA-N68.415.517.00.97.425.7108.6207.12
2Select Medical Hldgs.SEM-N5.718.
3Cigna Corp.CI-N81.210.323.41.77.413.823.6233.81
4Quest DiagnosticsDGX-N15.59.716.
5Anthem Inc.ANTM-N92.720.
6PerkinElmer Inc.PKI-N16.715.628.
7Universal Hlth. Svcs.UHS-N13.
8Humana Inc.HUM-N55.
9Amgen Inc.AMGN-Q138.

Source: Trading Central

Stocks are ranked based on an average of all screening criteria.

Topping our list is HCA Healthcare Inc., which is one of the largest for-profit hospital operators in the United States. The company has the second-best one-year performance on our list at an impressive 108.6 per cent, a five-year historical EPS growth rate of 17 per cent and a P/E of 15.5. The current TC Quantamental Rating is 7.4. The stock price seems to be maintaining its uptrend, making new record highs since breaking out of a consolidation back in November.

Amgen Inc. is one of the world’s largest independent biotechnology companies with expertise in renal disease and cancer supportive-care products. Amgen has the highest market cap and dividend yield on our list at US$138-billion and 2.9 per cent, respectively. The current TC Quantamental Rating is 6.1.

PerkinElmer Inc., a developer of a wide range of scientific research equipment, has the highest five-year historical EPS growth rate on our list at 28.3 per cent and a P/E of 15.6. The current TC Quantamental Rating is 7.4.

Quest Diagnostics Inc. operates a network of full-service laboratories throughout the United States. The company has the lowest P/E on our list at 9.7 and the highest TC Quantamental Rating of 8.1.

The investment ideas presented here are for information only. They do not constitute advice or a recommendation by Trading Central in respect of the investment in financial instruments. Investors should conduct further research before investing.

Gary Christie is head of North American research at Trading Central in Ottawa.

Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.