For more and more stock traders and investors, success when it comes to buying drug stocks increasingly is less a story of cash flows and steady dividends and more a game of determining which drug company has the best new drugs in the pipeline – just as investors have done with the biotechs for years. Whether this makes the stocks of the manufacturers more volatile than they have been traditionally – and especially around earnings time – will be worth seeing in the quarters to come.
Heading into the final trading days of January, volatility is the order of the day for at least a few of the major pharmaceuticals. And in closing lower for a fourth day in a row, the sell-off in Bristol-Myers Squibb (NYSE: BMY) is perhaps the most impressive in the group. Even noting the sell-off of four consecutive days in BMY does not do justice to the relentlessness of the selling in the stock, as traders and investors took profits in the wake of new, 52-week highs reached in late December. From their high point at the end of 2012, shares of BMY sold off for 12 out of the following 16 days, dropping more than 8%.
The most recent sell-off in the stock has helped BMY earn its third consecutive 7 out of 10 rating, a rating that puts Bristol-Myers at the upper end of our neutral range heading into Wednesday’s trading. BMY has a short-term, positive edge of more than 1%, and is moving closer to levels where traders historically have been inclined to buy rather than sell.
Shares of Pfizer (NYSE: PFE) are trading near the lower end of a range that extends back to mid-December. Down two in a row as of Tuesday’s finish, PFE may become an attractive target for short-term traders if the stock continues to follow-through to the downside, breaking down definitively from its month-long trading range. At present, the stock has a minimal positive edge in the short-term – less than half a percent – and neutral, 6 out of 10 ratings.
Bouncing by half a percent on Tuesday, Eli Lilly & Company (NYSE: LLY) so far represents the “green shoots” of the drug stocks that began pulling back over the past week. LLY finished lower for three days in a row before edging higher by half a percent ahead of Wednesday’s open. The gains lifted the stock up out of technically oversold territory, but Eli Lilly is still trading nearer to short-term lows than short-term highs.
Another option for short-term traders, especially those looking to minimize or even eliminate single-stock risk, is the PowerShares Dynamic Pharmaceuticals Portfolio ETF (NYSE: PJP). This ETF includes among its holdings all three of the drug stocks mentioned here as well as Merck & Company (NYSE: MRK) and Amgen (NASDAQ: AMGN).
Shares of PJP have closed lower for four days in a row after rallying to new, 52-week highs last week. The last two days of the pullback have been in technically oversold territory.
Be sure to read our latest column from 7 Stocks You Need to Know: Volatility and Visa’s New High.
David Penn is Editor in Chief of TradingMarkets.com.