Salix: Breakout Gains in Gastro

05/05/2014 7:00 am EST

Focus: STOCKS

Leo Fasciocco

Investment Columnist and Publisher, Ticker Tape Digest

Our latest featured breakout stock is a specialty drug company that is focused on the needs of physicians specializing in gastroenterology, explains Leo Fasciocco, editor of Ticker Tape Digest.

Salix Pharmaceuticals (SLXP) seeks to identify and acquire products that have near-term commercial potential and apply its regulatory and product development expertise to commercialize the products.

The company selects products that it believes serve to heal a gastrointestinal disease. Annual revenues are $933 million.

Technically, SLXP's stock is in a 10-week, double bottom base. The base is well formed and within an overall “U” trend. The stock has since put down a classic "W" base. The second low, in mid-April, undercut the prior low. That is bullish, indicating a final shakeout.

With strong profits coming this year, we see SLXP in a good position to be accumulated in anticipation of a breakout.

This year, analysts are forecasting a robust 42% surge in profits to $4.61 a share from $3.25 a year ago. The stock sells with a price-earnings ratio of 23. We see that as low, making the stock a good growth-value play for investors.

Meanwhile, institutional sponsorship is excellent. Many funds that rate 4- or 5-stars hold major positions in the stock.

The largest fund buyer recently was 4-star rated Fidelity Select HealthCare Portfolio Fund which purchased 130,230 shares. The largest fund holder is 4-star rated Vanguard Health Care Fund with a 3.4% stake. It has held its position steady.

The stock went public in late 2000 trading around $5. However, in early 2009, the stock began to head higher—and did it! The stock has since soared to a peak of $120 earlier this year.

We suggest accumulation of a partial sake in SLXP in anticipation of a breakout. The stock is most suitable now for an aggressive investor. Further buying can be done on a breakout over $117.10. We are targeting SLXP for a move to $140 after a breakout.

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