Play the News With the Charts on Your Side
Last month, the danger of European debt contagion, tensions in
Korea, and inflation in China were in focus. But late in January,
those concerns gave way to worries over political revolutions in
Tunisia and Egypt, and other countries in the Middle East. But
crisis creates opportunity, so some North American energy stocks
could benefit. In addition, a second U.S. federal judge ruled
against the recently enacted health care bill, and there are some
companies that stand to benefit from these rulings. That's why our
top stock picks
this month are oil stocks and health care stocks.
Where do the markets go from here? So far, stocks appear to be
ignoring the inherent danger of a serious crisis in the Middle East
even after Moody's downgraded their rating on Egyptian bonds. But
with 8% of the world's goods and 3.3% of its oil sent through the
Suez Canal, there is reason for concern.
Technically the next support for the Dow Industrials is at the
20-day moving average at 11,811 with 11,740 being a stop-loss point
for traders. But the zone 11,557 (50-day moving average) to 11,450
is the major support zone and a penetration of that zone would
cause a change in trend. A sharp reversal up to a new closing high
would negate prior downside reversals. However, increased
volatility and heightened political risks make owning domestic oil
stocks and health care stocks a common-sense approach to offsetting
the current political and investment risks.
#1 Anadarko Petroleum Corporation (APC)
Anadarko Petroleum Corporation
), a major oil and gas exploration and production company, with
operations primarily in the United States, the deepwater of the
Gulf of Mexico and Algeria, is in a bull market that began in
October 2008. Last year was spent retracing a breakdown that
occurred in April. But in December, amid rumors that
) had its sights on APC after failing to acquire
), the stock broke out on a huge breakaway gap from a major bottom
"V." Breakaway gaps need not be retraced (covered), so APC may have
another major move up from it.
The rumors have not been confirmed, but based on the current
price, the stock is still worth purchasing as a play on the
continuing increase in the price of crude oil. Anadarko's earnings
for Q4 are expected to rise more than fivefold, according to
Thomson Reuters. Technically, the breakout has a target of
$90-plus. S&P rates APC a "five-star buy" with a target of
$140. Buy now for a trade to $100 or for a long-term target of
#2 Chesapeake Energy (CHK)
) is one of the largest independent exploration and production
companies in the United States. It focuses on U.S. onshore natural
gas production east of the Rocky Mountains.
On Jan. 30, the company said that
) would pay $1.3 billion for access to acreage held by Chesapeake
Energy. CHK has also developed a dominant natural gas shale
position, and S&P "expects its expertise in unconventional
drilling to carry over to liquids development."
Technically, the close above $28 represents a major breakout
from a three-year consolidation. The target for CHK is $39.
#3 Joy Global (JOYG)
), a manufacturer of surface and underground mining equipment, is
expected to increase revenues by 18.5% this year versus a 2%
decline in 2010 (October FY). It has an order backlog of $1.8
billion, and S&P expects it to continue to see both higher
orders and backlog.
Ford Research rates JOYG a "strong buy" and S&P's rates it a
"four-star buy" with a target price of $98. The stock has found
support on its 50-day moving average since the major breakout at
$63 in August. The technical target for JOYG is $100.
#4 Suncor Energy (SU)
The recent merger with Petro-Canada made
) one of Canada's largest oil and gas producers. It is focused on
Alberta's vast Athabasca oil sands, making it independent of
operations outside of North America.
Compared with other international oil companies, SU is not only
safe from problems in the Middle East, but its profit margins
increase greatly when oil rises above $80 per barrel, making it a
hedge against rising prices due to Middle East tensions.
Technically, SU broke from a saucer formation on Friday, with a
long-term target of $50 and a trading target of $45.
#5 UnitedHealth Group (UNH)
Leading health care services company
) provides health care benefits to over 32 million individuals in
the United States. Even though the economic picture has been
unstable, UNH has managed to effectively execute its business plan.
The company should even do well in managed health care, but has
been highlighted by analysts as a beneficiary if the recently
passed health legislation is drastically altered or dismissed.
S&P estimated earnings of $3.65 in 2011 and $4 in 2012.
S&P has a "four-star buy" rating on UNH with a 12-month target
of $46. Technically, the stock has broken from a powerful
formation with a price target of $48.
#6 McKesson Corp. (MCK)
) is a biotechnology and drug company that operates in two
segments. First, the distribution of ethical drugs,
medical-surgical supplies, and health and beauty care products.
Second, it provides solutions for biotech and pharmaceutical
Earnings for FY 2011 are estimated at $4.82, up from $4.58. The
company has $1.3 billion in cash, which can be used for
S&P rates MCK a "five-star strong buy." The break from a
powerful cup formation has a technical target of $80, but the
company has been highlighted as a chief beneficiary of the failure
of a national health care plan, so the target may be too