At first glance, shares of Amgen (NASDAQ:AMGN) look quite volatile. Upon further inspection, though, the six-month range in AMGN stock is actually pretty tight — and it’s been getting even tighter, as the stock has spent much of 2019 gathering in tightening coil. This sets up for a potentially large move. This move can happen in either direction, with bulls hoping Amgen stock resolves higher.
There are a lot of considerations when it comes to pulling the trigger on a name like Amgen. It’s not just the technicals, but also the dividend, its valuation and growth profile. Let’s take a closer look, first with the charts.
Trading AMGN Stock
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AMGN is not the kind of stock that traders are normally drawn to. That’s more for the names like Advanced Micro Devices (NADSAQ:AMD), Tesla (NASDAQ:TSLA) and others. But that doesn’t mean we can’t trace the technicals on AMGN stock.
At the end of March, AMGN stock was showing weakness and threatening to break down from a short-term double-top. Fast-forward about two weeks and Amgen stock is above all of its major moving averages. While being rejected by downtrend resistance (black line), shares are hanging just below this mark. Could that set up a breakout?
That’s what I’m looking for in AMGN stock. A drop down to about $190 would give bulls a chance to initiate a position near the 20-day moving average and uptrend support. Whether the pullback is done here, near $193, or drops to $190, as long as support holds, it could give AMGN stock the energy it needs to push through resistance.
On the upside, a push through $196 could eventually ignite Amgen up to $206. Shares put in a double-top at this level in the fourth quarter, so it wouldn’t be surprising to see this area act as resistance on AMGN’s first try. On the downside, watch for support from the 50-day moving average at $188 — provided uptrend support does not buoy Amgen.
Below that, and a drop into the low-$180s is possible.
Valuing Amgen Stock
Amgen stock is looking better and better on the charts, but that doesn’t mean there aren’t things to like about its fundamentals.
For starters, AMGN stock has a 3% dividend yield. Management gave a ~10% bump in December, following increases of ~15% in each of the last two years ago. While the company has experienced lower growth than the past few years, it’s clear management is putting an emphasis on returning capital to investors.
There’s also the valuation, which stands at less than 14 times this year’s earnings. There is a catch, though: While this is a below-market valuation, we have to consider it versus its peers as well as against Amgen’s own growth profile. When compared to names like Celgene (NASDAQ:CELG), Bristol-Myers Squibb (NYSE:BMY) (who are in M&A discussions) and Gilead (NASDAQ:GILD), Amgen stock is expensive.
These stocks trade at roughly 10 times earnings or less, so, at 13.7 times this year’s earnings, Amgen looks less attractive. It would help if it had better growth, too. Analysts expect revenue to decline almost 4% this year and for earnings to fall about 2% year over year. That said, consensus expectations do call for a rebound in both metrics in 2020 while AMGN could always top expectations this year. After all, it has beat — rather impressively, I might add — top- and bottom-line expectations in each of the past four quarters.
One last note, AMGN stock is actually trading at a discount compared to its five-year average valuation — and that’s not just the price-to-earnings ratio either. Amgen isn’t perfect, but if shares are going to break out this year, I don’t expect the valuation to inhibit that move.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long CELG.
