Sometimes the best opportunities in the market come from stocks that everyone else is selling. When oversold conditions pile up in the healthcare sector, it can create chances to buy quality companies at discounted prices.
The Relative Strength Index is a momentum indicator that essentially measures how strong a stock is on its good days versus its bad days. Think of it as a mood ring for stocks. When the RSI drops below 30, the conventional wisdom says a stock has been oversold and might be due for a bounce. It's not a crystal ball, but it gives traders a sense of whether the selling has gotten excessive.
Here are three healthcare stocks that have gotten hammered recently, each sporting an RSI near or below that critical 30 level.
AbbVie (ABBV)
AbbVie (ABBV) might be oversold, but at least one analyst thinks the pharmaceutical giant still has room to run. On December 12, Morgan Stanley analyst Terence Flynn maintained an Overweight rating and bumped his price target from $261 to $269. That vote of confidence didn't stop the stock from sliding around 4% over the past five days, though. The stock has a 52-week low of $164.39, so there's definitely been some volatility here.
RSI Value: 29.9
ABBV Price Action: Shares of AbbVie fell 4% to close at $220.18 on Monday.
For what it's worth, the stock shows a Momentum score of 91.92 and a Value score of 93.51, suggesting the fundamentals might be stronger than the recent price action indicates.
argenx SE (ARGX)
argenx SE (ARGX) has taken the hardest beating of this trio, with an RSI that's barely holding above the floor. On December 18, Baird analyst Colleen Kusy downgraded the biotech from Outperform to Neutral and lowered her price target from $924 to $858. The stock has tumbled around 11% over the past month and sits above a 52-week low of $510.06.
RSI Value: 19.6
ARGX Price Action: Shares of argenx fell 4.7% to close at $800.88 on Monday.
An RSI under 20 is pretty extreme territory. It suggests either the market has gotten way ahead of itself on the downside, or there's something fundamentally concerning that investors are fleeing from. Either way, it's a name to watch for potential reversal.
Neurocrine Biosciences Inc (NBIX)
Neurocrine Biosciences (NBIX) has a clear reason for its recent struggles. On December 22, the company issued an update on its Phase 3 study of valbenazine in dyskinetic cerebral palsy, and the news wasn't good. "These results are disappointing, as there are no approved treatments for people living with dyskinetic cerebral palsy," said Sanjay Keswani, M.D., Chief Medical Officer at Neurocrine Biosciences. "We are deeply grateful to the patients and their families, as well as the investigators and site staff, whose commitment, dedication, and participation made this clinical trial possible."
Clinical trial disappointments can crater biotech stocks, and this one was no exception. The stock has dropped around 12% over the past month and has a 52-week low of $84.23.
RSI Value: 27.4
NBIX Price Action: Shares of Neurocrine Biosciences fell 3.3% to close at $135.99 on Monday.
The question for investors is whether this failed trial represents a fundamental problem with the company's pipeline, or just one setback in an otherwise promising portfolio of treatments.
When you're looking at oversold stocks, remember that momentum indicators like the RSI don't tell you why a stock is falling, just that it's been falling hard. Sometimes stocks are oversold because the market overreacted. Other times, they're oversold because the news really is that bad and more selling is coming. The trick is figuring out which scenario you're dealing with before you jump in trying to catch what might be a falling knife.
