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business newsAre Pharma Stocks Poised to Break Out?
A interesting pattern has emerged in internationally based pharmaceutical stocks. Here, a look at GlaxoSmithKline, Sanofi-Aventis, AstraZeneca, and Novartis.
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With potential nuclear problems, continued unrest in the Middle East, wild volatility, and contrary indicators like historically high profit margins and average investors piling back into equities, I've become increasingly wary of the market.
That said, I started looking at defensive dividend plays like internationally based pharmaceutical stocks and found an interesting pattern among them. I chose non-US based companies to get some dollar diversification.
The first chart is a five-year chart of GlaxoSmithKline (GSK). Clearly, the stock has been in a huge and prolonged downtrend, but the base at 36.50 has been building for over two years now. The stock is consolidating into what looks like a potential break of the downtrend. Look at the highs on the left of the chart. That's $60. The current price is under $38. Also notice the rising volume that goes back all the way to July 2009. Finally, GlaxoSmithKline pays a very healthy 6.5% dividend.
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The next chart is Sanofi-Aventis (SNY). It looks almost identical, basing around the $33 level and showing the same increase in volume. Its current dividend yield is 4.35%.
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Now, lets look at AstraZeneca (AZN). On the longer time frame, it looks like AstraZeneca has already broken out, though it has dipped back to short-term support around $46. If I'm right, it will hold support between $44.75 and $46 and continue to make its way higher. It does not show the same volume pattern as GlaxoSmithKline and Sanpfi, but we do see declining volume as the stock has turned back down. AstraZeneca's yield is a stout 7.9%.
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Finally, to prevent from selection bias, I show Novartis (NVS). Novartis is the one out of the four that does not match. Like everything else, it rallied off of the 2009 lows, but has had trouble getting through a $5 band from $55 to $60. What is also different is that it doesn't show the prolonged downtrend that the others do. I would speculate that if Novartis can hold above $55 and work off the supply that is clearly at that level, that it too will work its way higher. This is especially true if others in the sector work higher. There is a lower band from $52 to $55, but frankly, I have little confidence that it will hold should the market sell off again. Novartis's yield is a generous 4.3%, but it also trades at a relatively high P/E of 12.5x, so caveat emptor.
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This is just a superficial and cursory look at these positions. I just wanted to bring this to everyone's attention as it certainly caught mine.
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