Every December one of my annual exercises is to look at which sectors have underperformed and are likely to turn things around. This year the popular answer has been health care and there’s reason to believe that the industry’s recent rally may have legs. When looking at the sector we tend to focus on the big drug makers and giant pharma stocks. We’ve seen the SPDR Health Care Select Sector ETF (XLV) bouncing and the biotech sector making new 52-week highs. However, there’s a forgotten aspect within the space that’s starting to raise eyebrows among technicians – that’s medical devices (using the iShares US Medical Devices ETF (IHI) ). Last week I joined Worldwide Exchange with Frank Holland and touched on the turnaround happening within the sector and shared my pick of Idexx Labs (IDXX) . IDXX is the fourth largest holding within the IHI ETF (fun fact – it’s also the largest company in the state of Maine) and just broke out to all-time highs. The stock looks great on multiple time frames. In fact, the whole sector looks great on multiple time frames as my friend and fellow CMT, Katie Stockton wrote about on Pro this Monday . I agree wholeheartedly. When making my stock choice for Worldwide Exchange there was another idea within the sector I wanted to share, but I could only pick one for the TV segment. The other stock I’m looking at is Steris (STE) – the global leader in sterilization and infection prevention solutions. Looking at the stock over multiple time frames gives us a phenomenal risk/reward set-up. First, the longer term as seen in this 5-year weekly chart. Not surprisingly shares peaked at the end of the Covid pandemic. They gave back all those gains and have slowly been working their way higher ever since. Now, there’s a clear breakout. Its RSI momentum indicator continues to trend higher and is not in danger of being overbought – meaning there’s room to run and momentum is its tailwind. The trade The long-term investor can easily set parameters of risk/reward using the breakout above $250. On several occasions this level has acted as resistance and so often following a break above that threshold former resistance acts as support. Use levels just under $250 to add a preventive stop if it fails to push higher. To the upside look for shares to push to the $300 level over the next two quarters, which equates to roughly a 20%-25% gain. Over the short term it may take a little time to push further as overhead resistance at $267.50 is clear. The $250 level has been tested once and held, we believe it will hold again if tested. Again, over both time frames, a clear risk/reward narrative has been formed. Given the relative strength of Steris, which is up 26% year-to-date compared to the medical device sector which has gains of 8.7%, the leadership is clear, and we believe it will continue to lead as rotation into the medical device sector continues. DISCLOSURES: (None) All opinions expressed by the CNBC Pro contributors are solely their opinions and do not reflect the opinions of CNBC, NBC UNIVERSAL, their parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. THE ABOVE CONTENT IS SUBJECT TO OUR TERMS AND CONDITIONS AND PRIVACY POLICY . THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
