Yesterday, stocks closed higher for a second day as optimism that Europe would soon find a solution to Greece's debt woes lured investors into riskier investments. Currently, biotechnology and drugs is one of the best performing sectors, as there are 111 companies that have a relative strength at or above 80.
Out of the 300 biotechnology and drugs stocks that are generally tracked, prices of 195 stocks increased, and 87 decreased while 18 remained unchanged. So, the breadth was encouraging. Out of those 300 stocks, we will pick seven stocks that can be fairly termed ‘bullish' in the next three to twelve months.
Percentage change in share prices ranged from a gain of 16.67 percent (Palatin Technologies Inc. (AMEX:PTN)) to a loss of 11.64 percent (Aoxing Pharmaceutical Company Inc. (AMEX:AXN)). Absolute change in price ranged from a loss of $0.73 (Endo Pharmaceuticals (Nasdaq:ENDP)) to a gain of $3.74 (Biogen Idec Inc. (Nasdaq:BIIB))
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Seattle Genetics Inc. (Nasdaq:SGEN) is an automatic choice (kindly look at ‘Should you invest in Seattle Genetics, Inc. (Nasdaq:SGEN)' article). We will examine the outliers (PTN, AXN, ENDP, and BIIB) to see if they present any investment or trading opportunities. AXN, and PTN don't pass the cut as they are micro cap companies.
Endo Pharmaceuticals (Nasdaq:ENDP)
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Yesterday, ENDP closed trading at $39.01, compared with a 52-week range of $21.30 to $44.53. The company develops and markets branded and generic prescription pharmaceuticals used primarily to treat and manage pain. Recently, the company has diversified its offerings to include pharmaceuticals to treat urologic conditions, urology services and devices, and expanded its generic drug presence. Following the 2010 acquisition of Qualitest, ENDP estimated it had the sixth largest U.S. generic pharmaceutical business by total prescriptions.
Recently, the company completed a $2.9 billion acquisition of American Medical Systems (AMS), which helps it further diversify its presence into urologic medical devices and continue pushing beyond its legacy pain pharmaceuticals. The company's focus on debt reduction after recent acquisitions should bolster its balance sheet. I expect the AMS deal to be highly accretive to ENDP's earnings and anticipate ENDP updating guidance to reflect the deal's closing in early August. As a result, I expect its 2011 adjusted EPS estimate to touch $4.44 and 2012's to touch $5.25. Based on these estimates, my 12-month target price is $51.
Biogen Idec Inc.