Valeant Pharmaceuticals Intl Inc Has Turnaround in Store

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VRX stock - Valeant Pharmaceuticals Intl Inc Has Turnaround in Store

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Don’t agree with the latest analyst assessment of beleaguered biopharma company Valeant Pharmaceuticals Intl Inc (NYSE:VRX)? Don’t worry about it. If you wait a few days, odds are good a new — and opposing — opinion of VRX stock will surface.

All of these mixed opinions are wreaking havoc with the stock, of course. The VRX stock price fell from above $17 in February to a low of $8.31 in April. And it went from a high of $18.25 in June to less than $11 in November to a high of $22.81 just a few days ago. This is a name not even the pros can agree on.

There’s power in embracing the fact that nobody can agree on whether or not the company’s turn-around effort is actually taking hold, though. The chart makes more sense as a predictor of what’s to come than the headlines do.

And the chart’s saying, believe it or not, this is turning into a pretty good long-term turn-around play — for those who can stomach the inherent volatility VRX stock is apt to dish out for the foreseeable future.

Hot and Cold Viewpoints on VRX Stock

The short version of a long story: Yes, this is the same company that just a little over two years ago was sitting on top of the world. As of August of 2015, the VRX stock price was above $260. In April of this year, shares were trading at less than $9 each. The company’s business model was essentially up-ended, with mountains of debt finally catching up with the organization.

There’s no better wake-up call than a 97% implosion in the value of your company’s stock. And while some would say it took a little too long to get around to it, Valeant Pharmaceuticals is working on a turnaround.

Most analysts are convinced that, if nothing else, the company is pointed in the right direction under fairly new CEO Joseph C. Papa. Not every analyst is convinced the stock’s recent value has adequately priced in the underlying risks, however.

Case in point: J.P. Morgan analysts recently wrote of their downgrade of VRX stock, “While Valeant has made progress stabilizing its core operations and addressing near-term debt liabilities, the company still faces significant patent erosion over that that will results in a step down in 2018 (earnings before interest, taxes, depreciation and amortization) … and muted recovery off of these levels.” Mizuho Securities analyst Irina Koffler isn’t exactly on board either, noting of the 80% runup from early November that Valeant could do “something dilutive with the stock at these levels.”

Not every pro is sour on Valeant, though. BTIG analyst Tim Chiang is one of a handful of bulls. He explained earlier this month, “While we recognize the challenges VRX faces with the loss of exclusivities on a number of products … we think an inflection point for the Co. could occur over the next 12 months, especially if new products like IDP-118 (topical lotion for the treatment of plaque psoriasis) gain approval.”

Renaissance Technologies Fund founder and manager Jim Simons, meanwhile, nearly doubled the size of the position he had in VRX stock last quarter.

The at-odds stances are just a microcosm of the tug-of-war traders have played with Valeant for months now. That’s not the most interesting part of the Valeant story at this time, however.

VRX Stock Chart Speaks Volumes

In a perfect, logical world, a stock’s price would change in response to news. We don’t live or trade in a perfect world, however. For better or worse, in a market that’s as efficient as the one we all constantly watch, a stock’s chart is a predictor of future headlines as much as it’s driven by current and past headlines. And, the way VRX stock is behaving when you take a step back and look at the bigger picture, it’s difficult to deny investors aren’t betting on a turnaround taking shape.

Take a look. On the weekly chart, we can see a string of higher lows and higher highs from Valeant shares. We can also see in recent weeks there’s been a flood of bullish volume pouring in. The chart has also given us bullish crosses of three key moving averages.


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Were it any other name, the technical cues may not mean as much. This is a company, however, that investors have plenty of reason to distrust, and plenty of other alternatives to buy. Investors are buying the stock anyway, sometimes even in the face of pessimistic headlines.

What traders are doing with their money speaks louder than any headlines do.

Bottom Line for VRX Stock

To be clear, Valeant Pharmaceuticals shares will almost certainly selloff again in the foreseeable future. This is a company with many lingering problems to solve, not the least of which is the patent cliff Chiang discussed. The question is one of extent — how damaging is a wave of profit-taking apt to be? If the next one is like the recent ones, any dip won’t be enough to up-end the bigger-picture rally.

So, you may want to take the hints the chart is dropping as face value, trusting the collective market sees something and knows something some analysts don’t yet see or know. That’s the way it happens more often than you might think.

Of course, it wouldn’t be unwise to keep any VRX stock trade on a short leash, just in case.

As of this writing, James Brumley did not hold a position in any of the aforementioned securities. You can follow him on Twitter, at @jbrumley.


Article printed from InvestorPlace Media, https://investorplace.com/2017/12/valeant-pharmaceuticals-intl-inc-vrx-stock-turnaround-in-store/.

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