Seller's remorse?
It sure seems like it. Yesterday UnitedHealth (UNH) printed a terrific number and the health insurer's stock was headed higher. But the company was its usual conservative on the call as I predicted, and the stock then slumped back into oblivion.
This morning, though, we got multiple price target boosts from Wall Street and the stock reversed course and then ran up.
It was a classic case of the sellers simply not being able to take the pain of a stock going down rather than being patient and buying more into the weakness.
We have seen this pattern now multiple times already in this short earnings season.
For example, JP Morgan (JPM) reported a fantastic number and the stock, like UnitedHealth, looked up two maybe three points but then, as the conference call droned on sellers appeared to be giving up on the stock because it was going down as people were greatly concerned about credit losses.
The next day, though, it went right back up as analysts raised their price targets and buyers ceased on those words to do some buying.
We don't talk enough about price target boosts. They tend to have some impact if an analyst just picks a given day to raise numbers.
But those moves tend not to last.
However, when a plethora raise their price targets after a good earnings report, you tend to get a really positive reaction except if there is an exogenous event that knocks down all stocks.
Okay, you say, thanks for nothing, it's too late to get into the price target boosters of yesterday or the day before.
That's okay. All we have to do is take our cue from companies that boosted their forecasts but their stocks did nothing.
Two come to mind: Abbott Labs (ABT) and Johnson & Johnson (JNJ) both reported truly amazing quarters, the former being the biggest beat so far this earnings season.
Abbott not only has some robust numbers from its Covid-19 tests but also from its novel diabetes device that monitors glucose in painless fashion. They see $2 to $2.5 billion in Covid testing in this year alone after having sold 40 million tests so far this year already and they are just getting started. And that's how a company can guide its fiscal year to $3.25 when the analysts were looking for $2.86. I predict multiple price target boosts.
Johnson & Johnson was able to raise its forecast because some of its divisions, like medical devices, which were expected to be hurt by a lack of surgery because of Covid-19 crowding, didn't get dinged as badly. At the same time we have seen some good news from its vaccine prospects, as the company has moved up the start of its stage three trials to September and increased the trial age to 65 and over. I can't stress how important that is and not just because I fit the demo. We know there are plenty of people with pre-existing illness dying from Covid-19, but the elderly are very vulnerable. A vaccine that includes the baby boomers would be huge. And the company has enough vials to make several billion doses, something that Moderna (MRNA) , the putative leader can't possibly duplicate.
I think that JNJ knows something. I think they are in the pole position now.
The company didn't pound its chest but I think analysts will do so tomorrow.
Price target boosts can't save everybody. If there is a big rotation out of the stay at home or work from home names price target boosts will fall on deaf ears.
But on the heels of a great quarter with boosted forecasts and no gain? That's an analyst's dream.
(JP Morgan, Abbott Labs, and Johnson & Johnson are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells these stocks? Learn more now.)
