3 Healthcare Stocks That Could Hit Record Highs Next Week – Schaeffers Research (blog)

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Healthcare stocks are on a tear today, after Senate Republicans unveiled their bill to repeal Obamacare. What’s more, a handful of medical stocks could extend their rally next week — when the Senate is expected to vote on the bill, and when fund managers put a bow on their portfolios. Specifically, “window dressing” at the turn of the quarter could benefit drugmaker Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX), medical device manufacturer Intuitive Surgical, Inc. (NASDAQ:ISRG), and veterinary product maker IDEXX Laboratories, Inc. (NASDAQ:IDXX). Below, we’ll take a look at VRTX, ISRG, and IDXX stocks, which sport relatively attractive options prices right now.

What Is Window Dressing?

Each quarter, big funds report their stock holdings. Window dressing is when these fund managers spruce up their portfolios ahead of the end of the quarter, buying some of the hottest stocks and dumping the losers. That way, potential investors might think that manager had owned the red-hot stocks (and not owned the ice-cold stocks) the whole time.

As Schaeffer’s Senior Quantitative Analyst Rocky White outlined earlier this week, window dressing tends to be more prevalent in the second and third quarters. So, with the second quarter wrapping up next week, there’s a good chance that window dressing could exacerbate the losses of 2017 losers, and propel the 2017 stock winners even higher. And among the 20 best S&P 500 Index (SPX) stocks so far this year are VRTX, ISRG, and IDXX.

Record Highs In Reach for VRTX Stock

Vertex Pharmaceuticals stock is near the very top of the SPX list, sporting a year-to-date gain of nearly 85%. The stock was last seen 0.8% higher at $135.92, after touching a nearly two-year high of $137.26 earlier. VRTX shares recently took out resistance in the $120 level, following a historically bullish signal on the charts, and are now within about 5 points of a new all-time high. A round of upgrades could lure even more buyers to the table, too. Currently, just nine of 16 analysts offer up “buy” or better opinions on one of the shining stock stars of 2017.

Continued Short Squeeze Could Fuel ISRG Higher

Intuitive Surgical shares have skyrocketed more than 50% so far this year, and today notched a new record high of $963.54. ISRG stock was last seen 0.2% higher at $954.27, and could benefit from an exodus of options bears. The stock’s Schaeffer’s put/call open interest ratio (SOIR) of 2.0 is in the 99th percentile of its annual range, implying that near-term ISRG options traders have rarely been more put-heavy in the past year. In addition, an extended short squeeze could bolster Intuitive Surgical stock; while short interest has been declining, these bearish bets still represent more than seven sessions’ worth of pent-up buying demand, at ISRG’s average daily trading volume.

Analyst Upgrades Could Lift IDXX Stock

IDEXX Laboratories stock is up 0.4% at $167.33, thanks to the broader healthcare rally. The shares touched a record high of $173.01 earlier this month, before pulling back to support at their ascending 80-day moving average. IDXX stock still sports a year-to-date gain of nearly 43%, yet not even half of the analysts covering the shares deem them worthy of a “buy.” Plus, it would take more than a week to repurchase all of the shorted IDEXX Laboratories shares at the equity’s average pace of trading. A round of upgrades or short covering could add fuel to IDXX’s fire.

Options Attractive on VRTX, ISRG, IDXX

For speculators expecting Vertex, Intuitive Surgical, and/or IDEXX Laboratories stocks to extend their uptrend next week — whether via window dressing or another possible healthcare boost from a Senate vote — short-term options can be had at a relative bargain. The Schaeffer’s Volatility Index (SVI) for VRTX is 37%, in the 30th percentile of its annual range, suggesting Vertex’s near-term options are attractively priced, from a historical volatility standpoint. The same can be said for ISRG and IDEX, as their respective SVIs are in the 35th and 25th percentile.

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