Blackstone Group LP (BX) is the world’s largest and most diversified alternative asset manager...
10/24/2003 12:00 am EST
Bryan Perry, long-standing technical analyst with ChangeWave Investing, recently launched a trading-oriented service, The Tactical Trader --a welcome addition to the advisory world. Despite its technical nature and high level of sophistication, the advice is clear and understandable for the trader and investor alike.
ooks like some money flow is starting to find
its way back into the generic drug sector. It is hard to find
a sector with more compelling fundamentals than the generics. The highly charged sector is
on a roll on several fronts (expiring patents, a favorable FDA, politically popular, cheap prices,
insurance endorsed). The generic drug industry is only in the third inning of
a nine-inning ball game. There remains a huge future for the best-positioned companies
in the space, with a very high degree of earnings visibility
for the next two years.
"We are recommending Teva Pharmaceutical (TEVA NASDAQ). Headquartered in Israel, Teva is the biggest player in the generics industry. Close to 90% of Teva's sales are in North America. Earnings are expected to rise 30% this year to $2.03 per share, meaning the shares are trading with a current P/E of 28, or one times its growth rate and a forward P/E of about 22. For 25%-30% predictable big-cap growth, that's cheap.
"Technically speaking, the stock is in a powerful uptrend that started in March. Its chart shows a pair of double-bottom, higher-low formations. The stock is also sitting on a key support line (200-week) that is found by pulling up a three-year or five-year chart. So the stock ought to accelerate off the right side and rocket through the recent high of $61.56 and head straight to our three-month price target of $73 for a projected gain of 25%. From a momentum standpoint, the stochastic indicators, both short- and long-term, have the stock very oversold and just now turning up. Buying the stock here holds with it the potential for a 15-point run from today's level.
"Option traders should buy the TEVA March 55 call, offered at $7 per contract. Each call represents the right to buy 100 shares of stock at $55 for the next five months. If the stock hits $73, the calls will have an intrinsic value of $18 which represents a projected gain of 150%. The risk/reward ratio on this option trade is very attractive."
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