IBD 50 Stock to Watch: Market-Leading Healthcare Stock Close to New High

Wednesday’s IBD 50 Stock to Watch pick is a leading health stock forming a flat base near a buy point. Cardinal Health (HAC) is No. 2 in its industry group and has just reached a new high on its relative strength line.




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The Dublin-Ohio-based provider offers a wide range of healthcare services and medical supplies to hospitals, laboratories, pharmacies and long-term care facilities. Cardinal serves nearly 90% of all US hospitals, 60,000 US pharmacies and 130 nuclear pharmacies.

The company operates in more than 35 countries, with more than 10,000 specialist practices and clinics. It has more than 4,500 manufacturing partners in the healthcare supply chain.

Cardinal Health’s home solutions cover 3.4 million patients with more than 46,000 healthcare products, while the Outcomes digital ecosystem supports a network of more than 23 million patients.


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Rise in relative strength of healthcare stocks

Cardinal Health is second in the Medical-Wholesale Drug & Supplies group. The group is ranked 20th out of the 197 IBD groups. The CAN SLIM investment system searches for companies in the top 20 IBD sectors to find outperforming growth stocks.

He is also part of the Leaders and Stock near a point of purchase lists.

The healthcare stock has an impressive relative strength rating of 97, meaning it has outperformed 97% of stocks in the IBD database. It also holds a respectable composite rating of 94.

On the other hand, its less-than-stellar EPS rating of 73 is weighed down by the erratic earnings growth over the past year.

CAH stock is forming a choppy flat base and trading within 6% of a buy point of 72.38 on the MarketSmith chart. Shares previously exited a 16-week cut base with a buy point of 64.63.

The relative strength line has just reached a new high, as indicated by the blue dot on the weekly chart. However, the stock fell below its 21-day exponential moving average support line on Wednesday.

New CEO at the helm

Jason Hollar took over as CEO on September 1, replacing Mike Kaufman. Hollar previously served as chief financial officer.

Cardinal recently announced a collaboration with PayrHealth. The company, a full-service payer-vendor relationship manager, will provide contracting and management services.

The partnership aims to help physicians simplify contracts with payers and maximize financial performance. The alliance will focus on rheumatology and ophthalmology services, with plans to expand into other therapeutic areas in the future.

Shares rose 0.7% on very heavy volume after the September 16 news.

Mixed benefits of health actions

Cardinal missed Q4 2022 EPS expectations on August 11, but exceeded sales expectations. Management reaffirmed its full-year 2023 EPS guidance of $5.05 to $5.40 per share in September.

Sales growth of 11% for the quarter ended in June marked a decline from 14% in the quarter ended in March.

Analysts expect earnings growth of just 3% in 2023, but more robust growth of 18% in 2024. Cardinal is expected to report its first quarter 2023 results on November 4.

The company pays an annualized dividend yield of 2.9% to shareholders.

Mutual funds hold 55% of CAH shares, with 1,807 funds holding shares in September, compared to 1,840 in June.

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