Market Weekly Review: Healthcare Leads the Way Higher

The broader U.S. market averages all closed at record highs on Friday, as bulls won out again this week. Healthcare stocks led the way higher this week, while Energy names lagged.

Looking ahead to next week, the retail sector will dominate the waning days of earnings season, led by Home Depot (HD), Macy’s (M) and Target (TGT).

On one hand, equities are at all-time highs; but on the other, third-quarter earnings are on pace to decline from the previous year.

On Thursday, strategists at Morgan Stanley chimed in on Thursday, about how they expect the next major market shift could play out:

“We think Value's performance relative to Growth is bottoming after 13 years of underperformance. We see a two-step process that plays out over an extended investment horizon: Growth's underperformance drives Part 1, and then Value's outperformance drives Part 2. In between, there’s a recession. To be clear, our economists are not making a call on the timing of the next downturn. However, the current late-cycle environment isn't likely to last forever, and we believe that investors should look ahead to the coming regime shift.”

Knowing what and when to buy can be challenging for any investor. However, the fact remains that attractive investments are out there, if you’re willing to dig a little deeper.

One such healthcare name that has a little bit to offer both growth and value investors is worth a closer look and is our Stock of the Week below…  

Stock of the Week: Centene (CNC)

The company provides managed care health insurance to about 15 million customers, across 32 states and three different countries.

The stock gained 4% this week, as healthcare names led the market to new record highs.

Looking ahead, these gains should keep on coming. Here’s why:

Centene has strong operating momentum, as evidenced by the better-than-expected quarterly results delivered by management on Oct. 22. The company earned $0.96 a share in the third quarter, as revenue increased 17% from the previous year, to $18.98 billion.

Centene posted 6% member growth in the period, building its leadership position in the government-sponsored healthcare market, such as Medicaid and Medicare. This position will be further bolstered by the company’s pending merger with Wellcare Health (WCG), which is expected to close in the first half of 2020.

Management confirmed this favorable outlook on Tuesday, with an upbeat message at the Credit Suisse Healthcare conference.

Wall Street agrees, as 4 of the 5 active analysts on Wall Street rate the shares a Buy. The average price target of $65.20 represents another 13.3% upside potential to current levels.

In the meantime, the stock appears to offer growth at a reasonable price. Centene is currently valued at just 11.7x expected full-year earnings of $4.94 a share. This is both a discount to the overall market and industry average valuation of 13.4x. It also compares favorably to the 16.7% annual earnings growth the company is expected to average of over the next three years.

The hedge fund community is one group that sees value in the shares. Just this week, Bloom Tree Partners and Maverick Capital reported increased stakes in Centene.

The company is also putting its money where its mouth is, as management pledged to repurchase $500 million worth of stock last month. The next potential catalyst for Centene is its upcoming Financial Guidance and Investor Day, on Dec. 13.

FYI: This is just 1 of the 20+ stocks selected for the Smart Investor portfolio. That’s where we share more detailed insights on our weekly stock picks. You may also want to learn more about how we use TipRanks indicators to find stocks that are primed to outperform. Discover the Smart Investor portfolio here >>

Wishing you a world of investment success!