Allergan Has Potential But Can It Deliver ?

Allergan has a very strong aesthetics business as well as 6 potential blockbusters in clinical trials. However can it deliver ?

Allegan (NYSE:AGN) is a stock that I’ve been watching closely due to the huge decline its stock underwent from mid 2015 to December of last year. Allergan’s share price lost 40%+ but I don’t think that decline was warranted as I still believe the company is fundamentally strong. In saying this, Allergan relies more on acquisitions than other big biotech companies as it doesn’t have big in-house R&D budgets. The company is always on the watch for smaller companies especially within areas currently such as Nash where a huge unmet need remains unaddressed. If a company such as Allergan for example sees any potential among smaller companies, it usually comes in and acquires in aggressive fashion. We saw this behavior recently when Allergan bought Tobira for $1.7 billion and also Akarna for $50 million i the space of 48 hours.

The company has basically availed of three Nash treatments out of these two acquisitions and is rolling those out currently by getting them into trials in an attempt to get something approved from the FDA. Also Allergan has gone into partnership with Novartis (NYSE:NVS) as it wants to use a combination therapy of it so on C.V. C. oral treatment along with Novartis’ FXR agonist in an attempt to again just get their name stamped on some indication or an approved treatment within this sector. There are no prescribed treatments for NASH at present so its a sector with a huge unmet need. There’s an awful lot of M&A activity at present so I don’t see the level of these acquisitions and mergers slowing down anytime soon. So that’s one of the big six drugs that Allergan has in R&D at present.

Another one which again I like because of the market it wants to address is right past in this drug is Rapastinel for the depression sector which again has a huge unmet need. The benefits that Rapastinel has over other treatments in the sectors is that it provides instant relief which lasts for more time. Furthermore there seems to be less side effects over other drugs which again this looks very promising. Allergan should have results of these trials again by the back end of this year. So shareholders are definitely optimistic about at least two to three of the company’s six treatments that it has in late stage clinical trials at the moment. My own picks would be Rapastinel and its NASH treatments.

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Novartis Should Be Bought On A Pullback

Novartis (NYSE:NVS) Should Be Bought On A Pullback. Entresto & Cosentyx drugs really have the ability to drive sales forward.

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Ford’s Trading Strategy For Income

Ford (NYSE:F) has been a range bound stock for quite a while now. It pays out a 5%+ dividend yield which definitely can be increased with a clever options strategy. Listen here.

I have been bearish on Ford (NYSE:F) stock for quite a number of years now especially when you consider where shares have declined from recently. Ford didn’t go bankrupt like General Motors (NYSE:GM) but the stock dropped to $1 a share back in the ‘great recession of 2008 & 2009. Even though management and bullish analysts will say that Ford’s production setup nowadays is far more streamlined now than before, this industry still requires the spending of an awful lot of money on factories and raw materials which means the ongoing upfront investment is still very large compared to most of the other sectors.. In saying this, Ford now states that it can basically turn off the tap with respect to its manufacturing which frees up a lot of cash flow. Dividend investors from the cash flow stance will favor the more streamlined Ford but is it enough ?

In the auto sector, all of the companies rarely have strong competitive advantages which basically protect against downside risk. Advantages such as economies of scale, brand strength and pricing power are intangible assets that can keep a company’s margins strong in this sector over the long term. However I just don’t equate any of those afore-mentioned competitive advantages with Ford, which is why I’m always conscious of downside risk. In saying this, that’s basically speaking with my capital gains cap on so to speak as opposed to a dividend income generating stock. In fact from an income perspective, the stock definitely can’t be faulted over the last few years. Why? Well management has paid a special dividend annually plus the yield is presently well over 5% and although the stock is trading south of $12 a share at present, it has remained relatively range-bound. FRom an income perspective, although the stock has slowly grinded lower over the past few years, it still hasn’t pierced through $10 a share which is encouraging.

So definitely from a dividend point of view, the stock can’t be faulted. Now if we take this one step further a lot of my readers will know that I like to trade options to boost dividend yields. To boost income in a stock like Ford (even though it’s not most volatile) can be done by consistently selling option premium against the long stock position every month or every 45 days. By careful management the five percent yield annualized can easily be bumped up to ten percent or even fifteen percent etc. One just has to be wary when to sell premium because as I’ve said Ford is not the most volatile stock even though it does have strike prices which are half a dollar wide on some expiration dates. You don’t want to be selling too much premium at present when volatility is low because the money just isn’t in the options.

So on a recent article I wrote, I discussed the possibility of selling an inverse Jade Lizard Strategy which is basically the combination of a a sold call option above the price of the stock and also the sale of a put spread below the price of the stock. As long as the total income received is more than the width of the strikes of the put spread, then there is no risk on this trade to the downside with respect to the option’s trade. Now, a trade like this in Ford has distinct advantages because one can place a stop loss, (something like 10% below the current price of the stock), which improves drastically the probability of success of the trade. The mindset here for the investor is to cap your upside so you can consistently make more money over the long term. A lot of investors have been long this stock for a good few years and are probably still underwater on their positions just collecting dividends along the way. However by adopting strategies like this or simply selling a cover call, one can drastically improve the dividend yield over time and improve the income that the investment can give you.

So that would be my advice with relation to Ford. As I’ve said, I’m extremely conscious of downside risk in this stock. The CEO has just been changed, deliveries dropped five percent in June and we definitely have a cyclical top in the US market with respect to basically automobiles being sold (SAAR). Furthermore what should be monitored carefully in this stock is gas prices which are definitely helping the stock at the moment because Ford is still holding its own in relation to its SUV and truck sales. Free cash flows are still very robust and they are easily covering the dividend but this can change in a blink of an eye in a cyclical industry such as the auto industry.

Therefore to take advantage of the range-bound nature of this investment, I would definitely recommend selling premium when volatility is high against long positions. This meaningfully increases the probability of success despite the possibility of losing your shares on a strong move to the upside. That’s smart investing and over time will definitely bring you in better returns. This is a mindset that I believe investors (especially with range-bound stocks) need to focus on which is basically capping your upside to improve your probability of success. Ford definitely in my opinion is a stock that is ripe for this type of strategy because I do not see it breaking out to the upside any time soon.

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S&P500 Initial Rally Struggles Again

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S&P500 To Drop To The 50% Retracement ?

Although the market (NYSE:SPX) recovered before the close, equities clearly look like they want to go lower. Remember we must break below the May lows in order to complete a proper intermediate low. I’m looking for a retracement at least down to the 50% level ( around the $2,270 level) due to the big up-move we have had since the elections.

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Walmart Acts As A Flight To Safety Again

Well the market (NYSE:SPX) lost 20 handles today but one of our picks – Walmart (NYSE:WMT) actually finished up on the day. Even though a steep correction is on the cards in the spiders, our picks because of their strong competitive advantages should not fall as much. Furthermore the valuations of our picks are much cheaper than the market on average so if they do go underwater temporarily, the draw-down should be short and sweet. If we get the 200+ handle move down over the next few weeks, ignore all the noise that will definitely come from the financial media circles. This will be just a natural correction that is overdue. The commitment of traders recent report illustrates to me that this bull run has plenty more legs in it.

 

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S&P500 Desperately Needs A Correction

 

Source : Sentimentrader.com

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Costco Is Hated At Present

Implied volatility has spiked and sentiment is really on the floor in Costco (NYSE:COST). Too much fear from the recent Amazon (NASDAQ:AMZN) deal has adversely affected retail stocks. Can Costco bounce back from these lows ?

 

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Target – An Attractive Long Term Play

Fear is always overstated. Just look at the fundamentals of Target (NYSE:TGT) over the past decade and you can see the company has consistently increased its earnings and its revenues. This turbulence soon shall pass..

 

 

 

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Spiders Look To Have Least Printed A Daily Cycle Top

 

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