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The health-care rally is just beginning, two traders say

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Health care stocks surge with election outcome still uncertain

The health-care sector is getting its strength back.

That's according to Quint Tatro, president of Joule Financial, who said the sector is shaking off past concerns that weighed the group down.

"The general uncertainty in that whole health-care parameter has been very concerning and been a drag on the whole sector," Tatro said Thursday on CNBC's "Trading Nation." "We're now getting that relief and seeing that especially strong bounce within that sector again because the blue wave is not coming to fruition."

Although vote counting is still underway in several battleground states, stocks surged Thursday as Wall Street seemed to warm up to the idea of Democratic nominee Joe Biden in the White House with Republicans maintaining control of the Senate.

"The whole group … much like the general market was very concerned about this sort of blue wave and what that would do to the whole industry if Democrats were able to push through 'Medicare for All,'" Tatro said.

The XLV, the ETF that tracks health-care stocks, closed in the green on Thursday, climbing less than half a percent after hitting a new all-time high the day before, and while Tatro said he wouldn't be chasing them immediately, there's still some names he'd be adding to his portfolio.

"Two of our favorites are two of the big pharma plays, and that's Pfizer and Merck. Primarily, these are names that in the industry have better balance sheets than most," he said. "They're still pretty highly levered, so you've got to take that into consideration if, and when, we ever see higher interest rates. I doubt that happens anytime soon, but Pfizer is trading around 12 times forward earnings and Merck around 13 times. Good value."

JC O'Hara, chief market technician at MKM Partners, agrees with Tatro on health care's recuperation, and has a few stock choices of his own.

"Some of the most important breakouts that we're seeing today [Thursday] are coming from the managed-care stocks. United Health, Cigna, Anthem. They're all surging," O'Hara said on the same show before digging into Anthem's technical levels.

"There was stiff resistance at $310 on the upside, great support at $230, and the fact that we're able to push through meaningfully above resistance speaks to further upside, and I say that because historically when we see powerful rallies, they usually come after major consolidation," O'Hara said. "We believe there's at least another 20% upside from current levels, so we could set a technical target of $400 for Anthem here."

Anthem dropped 2.5% on Thursday.

Disclosure: Joule Financial and Tatro own shares of Pfizer and Merck

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