Two Ways to Play the Drug Sector
Walgreens (WAG) and Genentech (DNA) are both highly followed large-cap stocks that have acted quite differently this year.
Lets look at Walgreens first. This is a stock that started the year at $45, glided down to $40, stormed to $52 in 4 months, and dropped back down to $40 towards the end of last month, primarily due to concerns that Walmart would start selling prescriptions at a discount. While it is difficult to predict external circumstances, political and competitive, and their effects on Walgreens, the giant drugstore chain announced bullish same store sales exceeding 9% yesterday, clearing a nice double bottom on high turnover. I am bullish on Walgreens and I believe the stock can hit 48 without blinking – therefore I recommend buying it. In fact, I bought Jan 2008 $50 calls today.
Now Genentech – here is a giant that outperformed the best of drug stocks despite being a mega cap for most of this millenium so far. However, this year has been a depressing story for DNA. The stock has not produced any gain for its investors for much of this year but technical investors are starting to eye this one again due to the long and tight base formation that is now 8 months long. Earnings have been growing at 60% and the stock, although expensive compared to its largest competitor Amgen (AMGN), looks like it is about to breakout. I recommend a buy here with accumulations at every $2 that the stock goes down. If the stock gets to $76, it is a screaming buy. I bought Jan 2008 $100 calls today.
– Faisal Laljee
Full Disclosure: I currently hold positions in both Walgreen (WAG) and Genentech (DNA), however, my position might change at anytime, without notice.
have bottom fished WAG similiar , PBM, Health Extras, hlex. the shares are down $11 from $31 to $20 and have move up just $2+ so far. on DNA, i see that Amgen has fallen about $8 in 2 months to $69.00 and that wednesday there was good intial bounce effort. on wednesday Panera fell to 56s which is $13 off the highs just a few weeks ago. the next move might just be $10 upside in PANERA from the 56s/57s low-ish end.
today the walgreens bounce expanded to $5 and iam not sure there is much reward left in the short term. CVS has also climbed 13%. the play is almost over.
But Walgreen stands good chance of getting back to $52 just dont know when. not this month.
also, after a 1 month slide Amgen seems to have hit bottom around $69. the bounce is 8-10 days old and iam not sure how sweet its going to be. i picked up shares around 69.20s but where this bounce goes without a catalyst is anyones guess.