Novartis AG (ADR) (NVS) — This company is a leading provider of pharmaceuticals, generic drugs and health care products for consumers and animals.
Growth in Novartis’ core pharmaceuticals division has been negatively impacted by generic competition and price cuts. Currency headwinds are also weighing on sales.
While new product launches and cost cutting are expected to partially offset these revenue losses, this is an industry that thrives on blockbuster achievements. In other words, substantial earnings growth is required to maintain a high stock price, and Novartis is expected to see earnings decline 1.7% this year.
NVS stock broke down from a bull channel in late August when it plunged from about $99 to $92. A recovery back to $99 failed, and in late September, another failed rally left a wide downside gap at $96.46 to $93.65.
Heavy selling has characterized the plunge, but with MACD now oversold we could see a continuation of Wednesday’s rally and an attempt to attack the near-term downtrend line at about $95. The downside gap mentioned above also has a midpoint of $95, so that seems like a good place to enter a short sale.
Sell NVS stock short at $95 with a target of $85 for a potential gain of more than 10%. Protect yourself from theoretically unlimited losses in a rally by entering a stop-loss order at $98.
As with all short sales, ask your broker if there are any special restrictions on selling NVS stock short and be aware that if you hold shares short through a dividend (stock or cash), you could face additional liabilities.
