This Stock Is Poised to Rocket 64% Higher On Imminent Events
Biotechnology stocks are enticing because they can generate enormous gains in a short amount of time. They have an uncanny tendency to skyrocket on positive earnings or regulatory events.
But it’s a two-edged sword. These stocks also entail greater risk, because negative news can cause a biotech to tank.
Therein lies the challenge: How can investors get ahead of the curve, to anticipate when a biotech company is about to reap the rewards of positive “triggers” that spark momentum?
Below, we’ve pinpointed a biotech stock that enjoys four such catalysts:
- A history of earnings growth;
- A streak of earnings surprises;
- Recently raised earnings guidance; and
- The anticipation of a major regulatory event.
This quartet of powerful triggers puts our biotech stock in the “sweet spot” for an imminent pop to the upside.
It’s a method perfected by our new trading service Velocity Trader, which uses technical indicators and other concepts such as seasonality and events to place shorter term, high-risk, high-reward trades. This service not only capitalizes on quick movements but also leverages them.
Following the Velocity Trader strategy, we recently initiated a trade on the following stock based on time-tested criteria, not “gut instinct.” Let’s take a look.
Teva Pharmaceuticals Industries Ltd. (NYSE: TEVA) is the world’s biggest manufacturer and marketer of generic drugs. Based in Israel, the company also develops patented biologic treatments, which are derived from humans, animals or microorganisms. Biologics can be composed of proteins, sugars, or living cells and tissues.
Biologic drugs are crucial in cancer research and treatment today, but many have either already lost or stand on the verge of losing patent protection. This is paving the way for “biosimilars,” which are generic, less expensive copies of biologics.
With a market cap of more than $52 billion, Teva stands in the forefront of biosimilar research and development. The company is now readying several new gene-based biosimilar drugs for market and is on the cusp of dominating this space.
Teva also owns a global patent portfolio of more than 1,000 molecules. The company’s biggest-selling products include Copaxone for the treatment of multiple sclerosis; Provigil and Nuvigil for narcolepsy and other sleep disorders; and Azilect for Parkinson’s disease.
As we mentioned above, among the “trigger criteria” we look for are earnings growth, a streak of earnings surprises, raised guidance, and an imminent regulatory event that could light a fire under the stock. Teva fits the bill on all counts.
Teva reported third quarter 2015 earnings per share (EPS) of $1.35, a year-over-year increase of 2% and beating the consensus estimate of $1.29. That was the fifth positive earnings surprise in a row. For the first nine months of 2015, Teva reported EPS of $4.14, up 9% compared to $3.82 in the first nine months of 2014.
Management recently raised EPS guidance for full-year 2015 to $5.40-$5.45 from $5.15-$5.40, compared to reported EPS of $5.07 for full-year 2015.
So as you can see, Teva boasts a strong history of earnings growth and surprises, as well as recently raised earnings guidance.
And we look for event catalysts, such as pending regulatory decisions. Teva this month made a takeover offer valued at $40.5 billion to acquire the generics operation of Allergan. The deal, which would combine the No. 1 and No. 3 generic drug marketers in the U.S., is pending review by the U.S. Federal Trade Commission (FTC). If approved (as expected), Teva’s stock could skyrocket.
Of course, the FTC could reject the merger on anti-trust grounds, which would probably weigh on the stock over the short term, but Teva possesses numerous inherent advantages that make it a great investment, regardless. Because it amply meets our three other momentum criteria, it has the wherewithal to weather short-term adversity.
With the stock now trading at about $61, the median analyst projection for a one-year price target is $77, for a gain of about 26%. On the high-end, the one-year price projection is $100, for a gain of roughly 64%. Those gains look pretty good, in the context of a volatile market this year that many analysts are saying could descend into bear territory.
Teva’s trailing 12-month price-to-earnings (P/E) ratio is about 29, roughly in line with the drug manufacturing industry as a whole and a good value in light of its expected growth trajectory. The company’s dividend yield of 2.2% is icing on the cake.
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