The stock market is no stranger to the effects of popularity. Technology stocks have greatly benefited from investor excitement. On the other hand, trends associated with economic conditions, impact different market segments over time.
There is a big difference between market fads and true, long-lasting market trends.
The tech bubble in the early 2000s was a perfect example of how a fad – any company that referenced .com in their name or business – took priority over due diligence. These buying sprees mainly based on sentiment, rather than fundamentals, resulted in a big decline later. A trend, however, can be a long-lasting change supported by a shift in consumer culture or in the business itself.
One company stands to profit regardless of whether their play on sustainability is a fad or something long term. And with a discounted stock price, investors have plenty of room to jump in.
A Best-In-Breed Drug Manufacturer That Looks Too Cheap to Ignore
Amgen Inc. (AMGN) is a $133 billion drug manufacturer and one of the largest independent biotechnology companies in the world. The company uses molecular biology and biochemistry to provide healthcare services based on recombinant DNA technology.
The company reported a first-quarter earnings beat of $4.17 per share compared to the analysts’ estimates of $3.76 per share. Total revenues climbed 11% to $6.2 billion for the quarter. The unexpected revenue was led primarily by strong demand for its Otezla psoriasis drug and Repatha cholesterol drug.
Sustainable investing, also known as ESG (environmental, social, and governance) investing, has seen a significant spike in popularity among investors even before the COVID-19 pandemic. ESG funds saw record inflows of $45.7 billion for the first quarter of 2020 and are on pace to break fund inflows from 2019 by more than double.
Amgen includes ESG in its business strategy through programs like Access to Medicine that help patients get the drugs they require regardless of income level. The stock has become increasingly popular for ESG funds as well, lending additional buying pressure to lift its price.
The Fundamental Core for AMGN Stock
The stock trades relatively cheaply at just 14 times earnings compared to the biotechnology industry average of 22 times earnings. The long term EPS growth rate estimate of around 11% gives it a PEG ratio of less than 1.30 – a sign that the stock may be undervalued right now.
AMGN comes with an enticing 2.85% dividend yield, helping to protect investors against sharp downside movements in the stock price.
The Technical Frame
The stock chart for Amgen shows a sideways pattern that has developed over the past several weeks. The neutral RSI reading of 42 is evidence of the stock treading water right now with no strong bearish or bullish signals.
The 20-day SMA is trading above the 50-day SMA at the moment. This is a positive signal that the stock has some bullish momentum.
The Bottom Line for AMGN Stock
Based on Amgen’s full-year EPS estimates, this stock should be fairly valued at around $260 per share – a gain of more than 15% from its current price range.
If you’re looking for a sustainable company that could deliver outsized gains for 2020 and beyond, this stock should fit the bill.
The above analysis of AMGN was provided to MarketClub by Daniel Cross, a professional trader and financial writer.