Stock Picks: CVS and XEC

The S&P 500 (SPX) continues to respect 2,600 support as it closed at 2,604.47 on Friday, April 6, 2018. The good news for bulls is that RSI appears to be on the rise. A bullish divergence can be spotted on the daily chart and this might indicate that the end of the correction might be in sight.

As the index starts to gather momentum, let’s look at stocks with promising setups.

CVS – CVS Health Corporation

CVS Health Corporation is a healthcare company and retail pharmacy with its headquarters located in Rhode Island. The company has close to 10,000 retail sites across 49 states and locations outside the country including Brazil and Puerto Rico. CVS touts over 2.5 billion prescriptions managed or filed as they serve 5 million customers per day.

Technical analysis show that CVS appears to have capitulated on December 4, 2017 when volume surged to 40.465 million, which is over 295% of its average daily volume. While the stock continued its drop, it appears to be respecting support of 60. In addition, a bullish divergence can be spotted on the weekly chart. This suggests that the downtrend might be over soon.

In addition, fundamental analysis reveal that CVS’s PE ratio (TTM) is at 9.826. The low PE ratio indicates that the stock may be undervalued as its five-year PE average has been 19.41. The price might increase based on the PE ratio because price often catches up with the company’s earnings.

The strategy is to buy as close to 60 as possible. If bulls continue to defend this level, they will use it to create a base and march to our target of 83.5. The process may take less than three months.

Weekly CVS Chart

Monthly CVS Chart

As of this writing, the CVS Health Corporation stock is trading at 63.38.

Summary of Strategy

Buy: As close to 60 as possible.

Target: 83.5

Stop: 56

XEC – Cimarex Energy Company

Cimarex Energy Company is a natural gas and petroleum exploration and production firm with operations in Texas, New Mexico, and Oklahoma. As of the end of 2017, the company had a proved oil and gas reserves amounting to 3.35 trillion cubic feet equivalent. In addition, it owns interests in over 3,000 oil and gas wells.

Technical analysis show that XEC appears to respect support of 89.50. The stock dropped to as low as 87.98 on April 2, 2018, but bulls stepped in to defend the support. In addition, a bullish divergence was seen on the RSI of the daily chart. This indicates that the stock is gathering momentum that could reverse the trend. All of these are happening as bulls create a base above 89.50 support.

Furthermore, fundamental analysis show that XEC’s trailing twelve months (TTM) price to earnings ratio (PE ratio) stands at 17.31. The stock has some upside potential because its highest PE ratio in the last five years has been 41.25.

The strategy is to buy as close to 89.50 as possible. If bulls preserve the support, they may use it to climb to our target of 128. The process may take less than six months.

Daily XEC Chart

Weekly XEC Chart

As of this writing, the Cimarex Energy Company stock is trading 90.46.

Summary of Strategy

Buy: As close to 89.50 as possible.

Target: 128

Stop: 87


Featured image courtesy of Shutterstock.

Kiril is a CFA Charterholder and financial professional with 5+ years of experience in financial writing, analysis and product ownership. He has passed all three CFA exams on first attempt and has a bachelor's degree with a specialty in finance. Kiril’s current focus is on cryptocurrencies and funds, as he does his own crypto research and is a Product Manager at Mitre Media. He also has his personal website, where he teaches people about the basics of investing. His ultimate goal is to help people with limited knowledge of finance and investments to create investment portfolios easily, and in line with their unique circumstances.