This Fundamentally Strong Drug Maker is Poised for a Double-Digit Run
As a trader, I believe it is critically important to have one of three biases at all times: bullish, bearish or neutral.
Certainly, I can be bullish with regard to one segment of the market while being bearish on another. In fact, I consider 30 different aspects of the global economy each day to determine my bias for each.
#-ad_banner-#I might be very bullish on gold while being very bearish on Brazil. I might be neutral on Australia while bullish on India. It all has to do with looking at the global economy through the lens of credible forecasts.
This week, I have a slightly bullish bias on the U.S. market in general and reasonably bullish bias on the healthcare industry. That brings me to a trade that I am implementing for my Trade of the Week newsletter.
I’m looking to trade shares of Teva Pharmaceuticals (Nasdaq: TEVA). Teva is an Israeli-based global manufacturer of pharmaceuticals, focusing on generic drugs. This is a fundamentally strong company that looks poised to gain ground following a bounce off lows in late June.
The fundamentals for this stock are appealing.
- Teva has seen strong sales growth. Year-over-year total sales for the past twelve months are up +23.5%, compared with an industry average growth rate of +8.5% and the S&P 500 average growth rate of +4.0%.
- This comes on top of a five-year sales growth rate of +23.7%, compared with +6.6% for the industry and +9.4% for the S&P 500.
- The growth rate in earnings during the past five years is +35.0%, compared with +7.2% for the industry and +7.3% for the S&P 500.
Teva is also generally strong from a technical perspective. Among the key considerations:
- The stock trades in Zone 3 (see the chart above) and is trending higher. This indicates there is still plenty of upside potential for the stock.
- Institutional ownership for Teva is 57%, which is inside my “sweet-spot” range of 30% to 60%. This is enough ownership to support the share price, but a rally isn’t solely dependent upon institutional buying.
- Both the industry (biotechnology) and the sector (healthcare) are in bear-mode, but the forecast is so strong for this segment of the economy that I expect these groupings to begin to move higher in the near future. This should provide strong support for shares of Teva to bound higher.
Action to Take –> Given the factors cited above, I plan to go long the stock. I’ve put a target on the shares of $64. To get the rest of the details behind this and all my future trades (including the always important stop-loss!), I invite you to try a free subscription to Trade of the Week. Click here for details.