Biotechnology stocks have been in the driver’s seat during 2013 as the SPDR S&P Biotech ETF (XBI) is trading about 30% above its 2012 close. Companies like Immunogen (IMGN) and Biogen Idec (BIIB) are among the companies in the sector making new 52-week highs, but it’s the recent pullback candidates among the 47 companies in the XBI that are presenting the best trade opportunities.
Among the leading biotechnology trade candidates is recent Abbott Labs spinoff, AbbVie (ABBV). AbbVie is a research-based pharmaceutical company. The company maintains a portfolio of proprietary pharmaceuticals sold worldwide. Among others, AbbVie products are used to treat rheumatoid arthritis, psoriasis, HIV, cystic fibrosis and low testosterone. AbbVie has also built a vast pipeline of promising new medicines with more than 20 products in Phase II or Phase III development.
Since its spinoff in January, the shares have gained more than 25% while paying a healthy 3.6% dividend yield, a factor that broadens the stock’s attractiveness given the market’s continued search for yields. The recent pullback in ABBV shares has dropped it to a potential technical buy signal as the stock rests on a key technical trendline.
Click to Enlarge For the first time since March, ABBV is perched just above its 50-day moving average. Technicians often use this trendline as a barometer of technical health as well as a potential entry point for buying stocks on pullbacks. Friday’s open saw ABBV trading at $44.27, about 1.5% above its 50-day. The stock is also trading near short-term oversold conditions according to its RSI readings. A move to the 50-day will classify the stock as oversold and thus a short-term bullish stock.
The company is scheduled to address the Jefferies Global Healthcare Conference next week on June 4. These conferences usually serve as a forum for discussion of a company’s expectations and pipeline, a rather bullish subject for AbbVie. Our expectations are that the stock’s technical support will combine with potentially positive news from the conference to create a short-term rally in shares likely to target their recent highs around the $47.50 price point, an potential move of 8.5%. In addition to the short-term picture, we like ABBV as a candidate to outpace the market for the rest of 2013. As a result, the January 2014 $45 calls are an attractive leverage play on the shares, currently trading for $2.75 per contract.
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