What a tough ride it has been for Teva Pharmaceutical (NYSE:TEVA). Four years ago — which feels like a lifetime in the stock market — Teva stock was a $60-plus stock. Now? After a 16% rally last week, the stock is finally back over … $10.
Yeah, that’s the kind of ride it’s been. It also highlights the danger of following other investors blindly. Not often does following Warren Buffett deal a blow to investors’ portfolios, but in this instance, it most certainly did.
Plain and simple, Berkshire Hathaway (NYSE:BRK.A, NYSE:BRK.B) got Teva stock wrong, and those that bought simply because Buffett was long made a mistake. Proper risk management could have prevented a bulk of the losses, and should serve as a reminder for others in the future. A good situation can always turn bad, and a bad situation can always turn worse.
With all that said, it’s worth acknowledging that the financials are starting to improve for Teva stock.
Trading Teva Stock
There are obviously some flaws when a stock goes from $60 to $6 in just a few years. But despite declining more than 90% from its highs, Teva stock is actually looking better. At least, from the technical side.
Teva shares jumped 9.5% on Tuesday and climbed another 5% on Wednesday. While shares were rallying on Thursday too, they had some trouble holding onto gains after such a lofty move.
Teva stock put in a bottom near $6.50, a rough area where buyers continually stepped in and scooped up the stock. After rallying to a high of $10.99 in November, shares found resistance from the declining 200-day moving average. This was the start of a new downtrend mark (blue line), too.
However, Teva shares burst over both the 200-day moving average and downtrend resistance last week, as shares are now over all of the stock’s major moving averages. Some investors may view the setup as a cup-and-handle formation, looking for Teva to continue higher.
A move over $11 will kick start that continuation. If it can find some momentum, $13 isn’t out of the question. If it gets there, it will need to climb over $14 to fill the gap from May.
On a pullback, look to see that support steps up in the $9.50 to $10 area. That’s where the 20-day, 50-day and 100-day moving averages are, along with prior downtrend resistance. A decline below $8.77 would be a negative development and squash the long trade.
Bottom Line on Teva
Was 2019 the bottom for Teva stock? That’s what investors are hoping for. Analysts expect earnings of $2.39 per share on revenue of $17.3 billion. In-line results will represent a decline of 18.2% and 8.4%, respectively.
Unlike some other big rebounders in 2020, Teva’s business won’t be among the winning crowd. At least, according to current estimates. Consensus expectations call for earnings growth of just 2.5% in 2020, while revenue is forecast to fall another 80 basis points.
From a balance sheet perspective, Teva isn’t in the strongest shape, either. Current assets of $12.5 billion are outweighed by $14.1 billion in current liabilities. Total assets are a bit better, weighing in at $57.2 billion against total liabilities of $42.3 billion. And while many healthcare stocks have big balance sheets due to mergers and acquisitions — such as Bristol-Myers Squibb (NYSE:BMY) buying Celgene or AbbVie (NYSE:ABBV) buying Allergan (NYSE:AGN) — Teva just can’t get out of its own way.
The only thing steady has been its losses, with net income and free cash flow diving lower.
With all that said, traders are looking for a bottom. The stock has carved out a low and formed a new uptrend. Earnings per share and revenue are stabilizing. If management can deliver on that front, the stock has a chance to maintain momentum.
For those that are looking for that type of play, Teva stock may have a role in their portfolio. Those looking for a company with consistent growth and strong fundamentals will want to look elsewhere, though. If the trend in Teva breaks, stay clear.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long BMY.
