Momentum Grows for These 3 Healthcare Stocks

Key Points

• As the market starts to reflect on the potential tail risks in the S&P 500, a rotation has shown itself in three stocks in the healthcare sector.
• With price action leading the way, Wall Street analysts have found boosting their valuations on these names easier.
• Institutional buyers agree on these outcomes, as seen through recent buying activity.

Today’s stock market has brought about a set of distracting indicators and methods to analyze a potential trade—or investment—opportunity, some of which might be accurate in a completely binary setting. What most investors fail to realize is that all of these indicators and methods rely on price action, which is why today’s list cuts down all the noise to focus on one indicator alone.

Price action can often be the tell-all and be-all of an underlying stock, and over the past five days, a few stocks in the healthcare sector have outperformed most peers. This gives investors a potential list of names to keep track of in the coming weeks, understanding that this momentum might extend itself and bring about further gains to get the year 2025 started on the right foot.

These bullish price action names include stocks like CVS Health Co. NYSE: CVS or healthcare plan provider Humana Inc. NYSE: HUM to diversify the exposure away from retail right along its close peer and competitor, Molina Healthcare Inc. NYSE: MOH. All three of these stocks carry the sort of momentum necessary to continue further gains, not to mention a subtle sign of market preference as well.

CVS Stock Has a Big Task to Accomplish

Even though CVS stock has traded down to 68% of its 52-week high, the past five days have given investors a few percentage points to work its way back to a more favorable level relative to its highs. After rallying by 3.8% in one week alone, investors could assume that the market is starting to work a potential bottom and pivot in this stock.

More than that, more capital and investor interest might enter this name, knowing that CVS stock carries a low beta of 0.6 today. This will be especially true if Goldman Sachs analysts are right by calling for potential tail risks in the broader S&P 500 index, a volatile environment that might trigger a rotation into safer names.

With this theme in mind, institutional buyers from Swedbank decided to boost their holdings in CVS stock by as much as 1.2% as of late January 2025. This might not sound like much on a percentage basis. Still, the new allocation did bring the group’s net position to a high of $45.9 million today.

These factors also explain why analysts at TD Cowen decided to reiterate their buy rating on CVS stock, this time boosting their valuations for the company up to $80 a share. To prove this new view right, the stock would have to rally by as much as 46.3% from today’s level, not to mention make a new 52-week high.

If all of this wasn’t enough for investors and their bullish thesis, CVS management also offers a payout of up to $2.66 for shareholders in the form of dividends, translating to an annual dividend yield of as much as 4.9% today.

Momentum Traders Look to Humana Stock for Upside

After the stock traded higher by up to 4.2% over the past five days, some buyers decided that its low 72% of its 52-week high seemed too good to pass up. This healthcare plan provider seems like a great deal, based on the same thesis that CVS is riding on, the flight to safety that could be triggered if Goldman Sachs analysts are right.

This is why buyers from Principal Financial Group decided to boost their holdings in Humana stock by as much as 2.4% as of December 2024. This new allocation netted their position to a high of $54 million today, which could be a sign of momentum chasers returning to the scene.

Apart from being a momentum play in the making, this name can also appeal to the basic premise value investors operate under, which is a steep discount to peers.

Humana stock trades at a price-to-book (P/B) ratio of only 2.2x, significantly below the medical sector’s average 5.0x valuation today.

Momentum and Upside for Molina Stock Buyers

With a similar discount of 72% of its 52-week high, Molina stock has gotten a few Wall Street analysts to take on it as a potential “easy win” to boost their accuracy and reputation. Specifically, those from Truist Financial decided to reiterate their buy rating for Molina, this time also keeping a $370 valuation, representing a net upside of 22% from today’s level.

With a double-digit upside ahead of it, last week’s rally of 6.2% is not only the leader in this list but also the best risk-to-reward profile setting. This is why those from State Street decided to buy more of this stock as of November 2024.

Through a 0.5% boost in their holdings, this group now holds up to $900.8 million worth of Molina stock, or 4.5% ownership in the company today.

Like its peer, Humana, this stock trades at a discount to the rest of the sector’s average 5.0x P/B valuation, all through its current 4.2x multiple today.