A Health Care Trio in Rally Mode

 | Sep 19, 2012 | 3:30 PM EDT  | Comments
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Stock quotes in this article:

jazz

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prxl

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hca

In the time I've been writing this column -- nearly two years -- various sub-industries from the medical sector have cycled in and out of leadership. When I ran some scans of heavy-volume gainers Tuesday morning, I saw several top-performing medical names making upside moves.

Shares of Jazz Pharmaceuticals (JAZZ), which makes treatments for psychiatric and neurological ailments including narcolepsy, anxiety and obsessive-compulsive disorder, are up nearly 17% this week to $56.24 on optimism about the outcome of a patent lawsuit pertaining to its narcolepsy drug Xyrem, which has been a solid grower. Tuesday's price action brought the stock to an all-time session high. I have to emphasize that it's never a good idea to chase a stock when it rallies to new highs. Instead, watch for a pullback to short- or medium-term moving averages.

Analysts have great expectations for the company, and for Xyrem, in particular. Estimates call for earnings of $4.78 per share this year, an increase of 36%. Next year, that's seen growing another 20%, to $5.73 a share. I point out the estimates just a way of saying that a pullback could offer a chance to get in after others have sold on their own valuation projections, or simply to pocket some post-run-up profits. Better to exercise patience now, but the heavy buying, along with fundamental conviction, point to potential for Jazz in the longer term.

Another upside mover Tuesday was Parexel (PRXL), a medical consulting firm that provides clinical research, communication and technology services to industry clients. The stock advanced 1.8% in the session on heavy volume, to $30.64. That move came on the heels of news late Monday that the company would launch an accelerated $50 million share buyback program, part of a $200 million repurchase initiative announced in August.

Parexel appears to be turning around its earnings performance. After some year-over-year quarterly declines, earnings growth resumed in the March quarter. In the June quarter, earnings came in at $0.34 per share, up a whopping 240% from the year-earlier quarter.

This stock, too, is extended from a reasonable technical buy point after Tuesday's move. It cleared a two-month base and is worth watching for the next constructive pause above key moving averages.

Another health care name in rally mode is hospital operator HCA Holdings (HCA). The stock ran to a new 52-week high in each of the past three sessions. Other hospital companies have been running to new highs, with some analysts attributing the move to optimism that Obamacare will remain intact. It's not unusual to see news-driven moves to the upside or the downside. For that reason, it's imperative to use stops when entering a trade. HCA is an example of a stock that tends to trade in wide-and-loose patterns, meaning that some extra vigilance would be wise.

The stock is too far extended from its short- and medium-term moving averages to risk buying now. The stock leapt 7.8% in August, and 14.4% so far this month. After those kinds of moves, it's not unusual to see a pullback.

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