I'm 'Refining' My Strategy as Market Enters Overbought Territory

Equities are back in overbought territory, and this comes as some key elements of the economy are deteriorating. This is making opportunities hard to come by -- but I'm still hunting down a few healthcare and energy-related plays, as I'll outline here. 

I pumped a good part of my dry powder into the market during equities plunge in the first half of April. But with the rebound in stocks -- the Nasdaq rose by more than 7%, and the S&P 500 by over 5%, by Friday's close -- I am now much more selective in acting upon rarer opportunities when I spot them.

All this is against the backdrop of the larger economic action. The yield on the 10-Year Treasury is back up to 4.5%, with the Federal Reserve fully in a holding pattern, at least for the next few months. Also, last week, the University of Michigan survey came in below the consensus and posted its second lowest monthly reading on record. Inflation expectations within the survey jumped to their highest levels since the early 1980s, mainly driven by fears around tariffs.

Healthcare Opportunities

I highlighted Halozyme Therapeutics HALO over the weekend, after the stock recently fell some 25%. The pullback was triggered by proposed Centers for Medicare & Medicaid Services policy changes that are still in draft form.

I now believe there are only a relatively few company- or sector-specific opportunities within the current market. Giant insurer UnitedHealth Group Incorporated UNH has plunged by half in recent trading sessions and has been a huge headwind for the Dow Jones Industrial Average and myriad exchange-traded funds that hold it.

A key trigger for the plunge was news that the Department of Justice initiated a probe on the company for potential Medicare fraud. The company also replaced its CEO and withdrew its full-year outlook. A trifecta of bad news for shareholders. Is the worst now reflected in the stock? The company did bring back a previous leader who purchased some $25 million in new shares. I am not quite ready to pull the trigger in buying this dip, but I am watching this name closely for signs the stock is bottoming to take an initial stake in this name.

Picking Up Energy

The refinery sector is performing better recently after several quarters of vastly underperforming the overall market. Goldman Sachs upgraded the largest North American refinery company, Valero Energy VLO, to a "Buy" from a Neutral last week. It sees earnings getting a boost from improving crude differentials and from the return of OPEC+ supply.

The fortunes of fellow refiner PBF Energy Inc. PBF also seem to be turning around for the better over the past week or so as well. UBS upgraded this name last week to a "Buy" and boosted its price target by $6 a share. The investment bank sees improving crack spreads, particularly on the west coast, boosting PBF’s profit prospects significantly. This is also a stock that has seen consistent and heavy buying during the previous downturn from a beneficial owner.

I own both these refinery stocks and have added some exposure recently to this cyclical industry as the news flow has gotten more positive.

And those are some thoughts on the market as we begin a new trading week with the major indexes near all-time highs once again.

At the time of publication, Jensen was long HALO, PBF and VLO