ABBV buy the dip ahead of pharma season
Updated
Abbvie's volume has slackened somewhat after its recent triangle breakout, and it has broken its steep upward trendline. We may see a small correction late this month as Abbvie pulls back toward triangle top. However, if healthcare and pharmaceutical sector earnings continue to deliver this month (as they have so far), then Abbvie should get some buying volume along with the rest of the sector.
And then in August, a period of seasonal pharmaceutical strength begins. In The Stock Traders' Almanac, Jeffrey Hirsch makes an extensive study of seasonal stock market performance by sectors. His third-best-performing seasonal trade by average 10-year return (16.8%) is to go long biotech from early August to early March. I believe that's because this is the busy season for FDA drug application reviews.
The pharma sector does have an unusual level of political risk this year. Democrats have traditionally been hard on the pharma sector, and they look poised this year for a sweep. If the polls remain strongly blue, then we might see pharma underperform this year.
That said, I think a lot of the political risk is already priced in. Whereas most of the stocks I look at are at the very top of their 3-year valuation range in terms of forward earnings and sales, pharmaceutical companies like Abbvie and Merck are trading in the bottom quartile of their 3-year valuation range. With forward PEG ratio around 2, forward PSG ratio around 0.5, and a whopping 5% dividend, Abbvie looks really attractively valued. I've been doing a lot of deal-hunting lately, and this is one of the only stocks I've seen with both a strong growth story and a valuation I really like. The analysts and options traders like it too; Abbvie has a 9.9/10 Equity Starmine Summary Score, and near-dated options positions are heavily skewed toward calls.
And then in August, a period of seasonal pharmaceutical strength begins. In The Stock Traders' Almanac, Jeffrey Hirsch makes an extensive study of seasonal stock market performance by sectors. His third-best-performing seasonal trade by average 10-year return (16.8%) is to go long biotech from early August to early March. I believe that's because this is the busy season for FDA drug application reviews.
The pharma sector does have an unusual level of political risk this year. Democrats have traditionally been hard on the pharma sector, and they look poised this year for a sweep. If the polls remain strongly blue, then we might see pharma underperform this year.
That said, I think a lot of the political risk is already priced in. Whereas most of the stocks I look at are at the very top of their 3-year valuation range in terms of forward earnings and sales, pharmaceutical companies like Abbvie and Merck are trading in the bottom quartile of their 3-year valuation range. With forward PEG ratio around 2, forward PSG ratio around 0.5, and a whopping 5% dividend, Abbvie looks really attractively valued. I've been doing a lot of deal-hunting lately, and this is one of the only stocks I've seen with both a strong growth story and a valuation I really like. The analysts and options traders like it too; Abbvie has a 9.9/10 Equity Starmine Summary Score, and near-dated options positions are heavily skewed toward calls.
Note
I exited Abbvie after seeing that Trump signed an executive order to control drug prices this afternoon. Going to have to research how this will affect Abbvie and then decide whether to reenter.Note
Okay, so. Abbvie reported results today and got a nice earnings and revenue beat. Guidance for the full year was a little below Street expectations, forcing me to reduce my EPS forecasts for the next couple quarters by about 6 cents apiece. Nevertheless, Abbvie still remains one of my favorite values on the market right now. The company has gotten a bunch of positive trial results recently, including for migraines and eczema, and has submitted a number of drug applications to the FDA. Trump's executive order to control drug prices *could* have a negative effect on Abbvie, but he is meeting with pharma execs to try to figure out some alternative, so that remains to be seen.Daily technicals for Abbvie are negative, but weekly technicals are positive. It's possible it will bounce from here, at the 50-day EMA. However, I think a bounce from either the blue trend line or the 90.50 volume support may be more likely. Abbvie is cheap enough that I've already taken a sizable position here in dividend-paying shares, but I will add more if it hits my target area.
Note
ABBV is at the 20-week EMA today. We're getting close now to the buy level.Note
Looks like the rally on Abbvie has begun! It didn't quite touch my trend line, but fortunately I picked up some shares with an early buy at the 20-week EMA.
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