Amgen Horror Show

I bought Amgen last week because I thought the biotech sector was due for a rally. While biotech stocks have rallied by 4%, Amgen is down by 5% since my purchase. I believe Amgen is the most reasonably priced biotech stock. It trades at nine times earnings net of cash and is expected to grow earnings at nearly 10% a year over the next 4 years.

Amgen was hit with two scary sounding headlines over the past week that don't amount to much. The first is that they are being sued for their sales practices by 21 states. At most this will amount to a one time settlement of a few cents a share. The second was a study that confirmed the risks of one of their drugs, Aranesp. The risks of this drug are well known and well chronicled. They released the results of the study with their earnings two weeks ago but the official press release seems to have generated another round of selling. Analysts tooks down Amgen's numbers a meager 1% based on the results of the study.

Amgen is now down 17% since releasing earnings. The stock likely had some hot money in it as it has outperformed for the past few years. Biotech is a classic momentum group with momentum investors and Amgen clearly does not have that momentum right now. The fact that it is down in an up tape with the health care sector on fire is not lost on me. However, I believe there are a few dollars of downside and $25 of upside. They are supposed to earn $7 in 2013.

A possible catalyst would be that they use their $7 in net cash to buy back stock. They have a history of repurchasing stock but it is somewhat erratic and hard to predict but the cash is there.

3 comments:

Anonymous said...

When you bought the AMGN I looked at the chart and said to myself, that doesn't look very bullish to me.

You know that at least 90% of everything that is going on in a company is baked into the chart.

You should combine the technicals with the fundamentals dawg.

If you're a short term trader, swing trader, or day trader, the majority of the time, you don't even have to know what the company does but just trade using technicals and supply and demand.

After you associate the technical patterns with the fundamentals you know just by looking at the chart what has happened to the company and where it will likely be trading in the short term.

Tsachy Mishal said...

I dont trade on charts but I do look at them. A few months ago AMGN gapped up from $52 and ran to $65. Today, they filled that gap. Any technical significance?

Anonymous said...

For me I don't care how good the fundamentals of a company are.

I've been in stocks that I thought should be trading at 3X where it should be, completely undervalued, I bought the stock, and it was like fishing in a swimming pool.

Charts at least tell you how the supply and demand of a stock is.

After all, the stock market is nothing but a popularity contest. That is why Momo traders make money. Because they just look to get in something where everyone else is also getting in. With no demand and no liquidity chasing a stock, how will it go up.

Well I see what you did with the gap up.

You thought that because where you bought it was the fill of the gap, that it should go up from there.

It was a bounce trade, however the problem was that the stock traded much lower for much of the year then where you bought it.

What would have been a very significant was a bounce trade at 45 obviously.

For me the best bounce trades are when stocks make 52 week lows, and even then I never look to buy anything for a bounce unless it is at least 50% reduced in price from where it has been recently trading dawg.