We’ve been talking about a few Biotech and Drug stocks over the last few months and I wanted to talk about a few more that have been making noise. There is always downside risk to drug stocks. They may not have much of a pipeline or if they don’t get FDA approval for a drug then the stock will likely get creamed. Clinical trials can have a big impact on the stock as well. Either way, given the recent activity in the sector, there appears to still be a shift into some of these stocks.
I mentioned Johnson & Johnson (JNJ, $69.03, up $0.37) a few weeks ago as it headed into its earnings report. I said if we got a good earnings report, J&J could challenge its 52-week high of $68.85 back in May. The company beat Wall Street’s expectations by five cents and raised its full-year profit forecast by the same amount, to a range of $4.45 to $4.50. The August 65 calls (JNJHM, $4.20, up $0.05) were profiled at $2.30 and although they aren’t up 100%, they’re pretty close. Set stops at $3.80.
Pfizer (PFE, $18.89, up $0.08) is showing signs of life. The stock was just under $20 back in May and Wall Street seems to have all but forgotten this company. I mentioned then that the stock has been in a 5-year downtrend after hitting a high of nearly $50 in 2000. The stock hit a low of $17.12 about a month ago but has rebounded after reporting decent earnings. I only say decent because they only reported 2% growth. This is one of the reasons why we haven’t gone long with a LEAP call or anything because Pfizer just isn’t a growth stock anymore. I do like the safety of the stock (to a degree) and the 7% dividend but I don’t like Pfizer as far as options go.
Biogen Idec (BIIB, $69.50, down $1.78) fell 2.5% Friday but the stock has been on fire since the start of July, rising from $55 to $72. The 52-week high is $84.75. The August 70 calls (IHDHN, $2.30, down $1.20) fell 34% but could be back in play if Biogen Idec can make a run at its highs. The company has a great pipeline, has been raising estimates and has a partnership with Genentech with the drug Rituxan.
Gilead Sciences (GILD, $54.51, up $1.83) is also challenging its 52-week high. In early June the stock hit a high of $56.95 and looks to have a second wind. Volume was brisk in the August 55 calls (GDQHK, $1.35, up $0.62) as traders continued to like the news the company has started a late-stage study of a new HIV treatment candidate.
Amylin Pharmaceuticals (AMLN, $29.49, up $1.48) could be headed back into the $30’s despite reporting a wider-than-expected quarterly loss last week. That’s the first red flag for this one. It’s hard to buy call options on stocks that are losing money but Amylin could hit it big with its diabetes drug Byetta. The company could have a blockbuster on its hands and the good news is that it has nearly $900 million in the bank to invest in its pipeline and survive. For extreme risk takers, the August 30 calls (AQMHF, $1.35, up $0.50) rose 59% Friday.
And look who’s back in town…ImClone Systems (IMCL, $46.37, up $1.19). You know, the stock Martha Stewart got a federal indictment for? To make a long story short, she avoided a loss of $45,000 by selling nearly 4,000 shares, or her entire position, in late 2001 after receiving an insider tip. That tip cost her five months in prison, and her stock, Martha Stewart Living (MSO, $7.80, up $0.71) continues to trade under $10. Back to ImClone.
The stock can be volatile and is capable of make breath-taking moves. Lately they have been up. ImClone is up 15% for July and on Thursday reported earnings that Wall Street “accepted.” The company has several drugs in development that are pretty far along though Erbitux remains its bread-and-butter. There are other possible treatments with Eribitux so stay tuned. The 52-week high for ImClone is $49.18. The August 45 calls (QCIHI, $2.40, up $0.25) would be worth $5.00 if ImClone can hit $50 by August 15.
Rick Rouse
Rick@OptionsMentoring.com
