Dividend-paying health-care stocks could be in early days of a rally

October 18

It’s time to step back into health-care stocks, according to Wolfe Research. The sector was one of the worst performing over the past month, pulling back over 4% from September to October, technical analyst Rob Ginsberg wrote in a note on Tuesday. “As evidenced by XLV [Health Care Select Sector SPDR Fund], price is back through the 50 day [moving average] on this relief rally,” he said. “Not yet overbought, it looks to us like the early innings of a reacceleration back towards the highs. If this is the case, stocks across the sector should reap the benefit.” XLV YTD mountain Health Care Select Sector SPDR Fund year to date On top of that rally is the added benefit of dividend payouts on many health care stocks. With that in mind, CNBC Pro screened for stocks in the S & P 500 health-care sector that had a dividend yield of 1.5% or more, which is higher than the S & P 500 yield. At least 51% of the Wall Street analysts who cover each stock rates it a buy, according to FactSet data. Investors can nab a 1.9% dividend yield with Abbott Laboratories , which manufactures and sells pharmaceutical, diagnostic and nutritional products, as well as medical devices. About 55% of analysts covering the stock rate it a buy and it has 11% upside to the average price target, per FactSet. On Wednesday, Abbott delivered an earnings and revenue beat for its third quarter. The company also raised the bottom end of its full-year earnings-per-share guidance to between $4.64 and $4.70 a share, from a prior forecast of $4.61 to $4.71 a share. “We’re well-positioned to achieve the upper end of our initial guidance ranges for the year and have great momentum heading into next year,” CEO Robert Ford said in a statement. Abbott has gained 8% year to date and is up about 12% since July 26, when Abbott was ordered to pay $95 million in damages in a court case over its premature infant formula. With global medical technology company Becton, Dickinson and Company , investors get a 1.6% dividend yield. Some 60% of analysts covering the stock rate it a buy and it has nearly 16% upside to the average price target, according to FactSet. Becton shares are little changed year to date. Health insurer Cigna also yields 1.6% and has nearly 13% upside to the average analyst price target. Nearly 71% of analysts who cover the stock rate it a buy, per FactSet. Cigna’s Express Scripts division is among the pharmacy benefit managers accused by the Federal Trade Commission of boosting profits while “artificially” inflating the cost of insulin for patients. Cigna, CVS Health and UnitedHealth Group recently filed a motion demanding FTC Chair Lina Khan and two other commissioners recuse themselves from the lawsuit because of statements they claim indicate a bias against the companies. CI YTD mountain Cigna year to date Cigna beat earnings and revenue estimates in its second quarter when it reported results in August. Third-quarter results are expected Oct. 31. Connecticut-based Cigna is up 14% so far this year. Lastly, Merck & Co. yields 2.8% and has nearly 26% upside to analysts’ consensus price target. Some 64% of analysts covering the stock rate it a buy. The global health-care company focuses on prescription medicines, including vaccines and biologic therapies. On Thursday, Merck said its experimental treatment for the respiratory syncytial virus (RSV) in infants showed positive results in a mid- to late-stage trial. In July, Merck reported second-quarter revenue and adjusted earnings that topped analyst estimates . Merck said its cancer drug Keytruda and other oncology treatments saw strong sales, as did its vaccines portfolio and newly launched cardiovascular drug, Winrevair. However, the company’s HPV-vaccine Gardasil saw weaker-than-expected sales. Merck will also post its third-quarter results on Oct. 31. Shares are unchanged year to date.

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