Amgen was one of my favorite large cap stocks early in 2013. For a brief recap of the fundamentals, here is what I wrote about the company in an early March Name That Trade post:
AMGN has had positive earnings growth in every year in the past decade (the lowest growth rate was 2% in 2011), an impressive record given that it includes the financial crisis. The company has been a direct beneficiary of increased U.S. spending on health care, as 80% of its revenues are from the U.S. From AMGN’s most recent annual report, its top products (which account for about 90% of sales) currently are:
- Neulasta and Neupogen: Stimulate the production of white blood cells to help fight infection
- Enbrel: inhibitor of tumor necrosis factor (TNF), a substance that plays a role in inflammatory diseases
- Aranesp and Epogen: Agents that stimulate the production of red blood cells
- Xgeva/Prolia: a human monoclonal antibody that specifically targets RANKL, an essential regulator of osteoclasts (the cells that break down bone)
Some of these products will be coming off patent in the next few years, exposing AMGN to some generic competition in the years to come. However, in the meantime, AMGN’s pipeline has several drugs in phase 3, and most importantly, the company has shown an ability to continue to innovate in the past decade that bodes well going forward.
Amgen went on on a tear in March and April after its breakout to a new all-time high early in 2013. The stock is actually in the same place it was at its April high, around $115. The stock’s performance has been weaker than the broader biotech sector in the past 6 months because its earnings growth expectations have been cut a bit after the past 3 earnings reports. What was 10-15% expected earnings growth for 2014 and 2015 has now become 8-10% earnings growth.
At the same time though, AMGN’s valuation has become relatively cheaper as its stock price has lagged. It is a 17x trailing P/E stock with 8-10% expected earnings growth. On an absolute basis, that does not look stellar, but it looks better than pharma stocks. Other biotechs are of the higher growth/higher risk variety. I will be closely watching GILD, BIIB, and CELG price action to start the year.
As for the technicals, AMGN’s weekly chart still sports a clean uptrend, with the stock’s consolidation evident after its breakout to all-time highs (previous high from 2005 near $87 marked in red):
The rising trendline around $107-$108 corresponds with the rising 200 day moving average on the daily chart around that same level. The stock’s ripe for a long entry in that region. For now, we’ll simply keep an eye on Amgen stock.