Category Archives: Teva Pharmaceutical

Teva Gets Slammed

On August 3, 2017, Teva Pharmaceutial (TEVA) got slammed after the company reported a loss for the quarter and reduced its 2017 earnings expectations.  Below is the updated Coppock Curve for TEVA .

Technically Speaking: Teva Pharmaceutical

On April 5, 2011, we said the following of the downside targets for Teva Pharmaceutical (TEVA):

“Charles H. Dow indicated that the fair value of a stock is the average price that is paid by investors. The fair value is the point at which an investor, as opposed to speculators, will consider buying or selling a stock. The fair value that we’ve arrived is based on the low of July 2006. If Teva were to decline below $47.06, the prospects for $29.77 become almost inevitable.”

Since that article, as TEVA declined below the $47.06 level, the stock eventually declined to the the ascending $29.77 level by November 2013 as seen in the chart below.  After hitting the ascending $29.77 level, the price jumped to just north of $72.

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We’ll have to accept that this is all mere coincidence and slight of hand rather than any kind of basis in facts.  However, our claim has always been, if the target is achieved then review & decide whether to invest or if it is never achieved then move on to other opportunities.

Let’s review the prospects for TEVA under the current price structure which includes the periods since the November 2013 low to the present.  But first, you need to see the July 12, 2013 Speed Resistance Lines that we posted for TEVA as it is instructive and in alignment with the Dow Theory targets.

The long-term downside targets for TEVA based on the SRL indicated that the $32.50 level was the time to consider acquisition of the stock.  At that time we said the following:

“We could not determine a conservative downside target.  Because of this, we had to run some calculations and came up with the trendline of $43.33 and $32.50 as tentative support levels.”

Since TEVA provided the best indications using Dow Theory and came close using Edson Gould’s Speed Resistance Lines, we’re going to give the Dow Theory perspective in the long and short run and see where it takes us.

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The above chart indicates that at the current price Teva Pharmaceutical is considered below fair value ($38.23) as long as the fundamental data confirms what the price suggests.  Additionally, TEVA seems poised to achieve the downside target of the ascending $26.86 level (approx. $28.50).  Purchases of this stock are best made in stages with 50% of allotted funds at the current price and 25%+25% at predefined lower levels.

Nasdaq 100 Review

Below is the one year performance of our August 23, 2013 Nasdaq 100 Watch List stocks (8/23/2013 to 8/26/2014):

Symbol Name 2013 2014 % change
SHLD Sears Holdings Corp 39.6 34.67 -12.45%
EQIX Equinix, Inc. 170.01 217.25 27.79%
TEVA Teva Pharmaceutical 38.3 52.22 36.34%
CHRW Robinson Worldwide 57.2 68.45 19.67%
EXPE Expedia Inc. 48.84 87.43 79.01%
NUAN Nuance Comm. 19.31 17.17 -11.08%
MXIM Maxim Integrated 27.71 30.91 11.55%
BRCM Broadcom Corp. 25.24 38.81 53.76%
ISRG Intuitive Surgical 390.09 478.68 22.71%
NWSA News Corporation 15.75 17.62 11.87%
Avg. % change 23.92%
NDX Nasdaq 100 Index 30.26%

The watch list of stocks gained +23% versus a gain of +30% in the Nasdaq 100 Index.  The best performing stock, with gains of +79%, was Expedia which was a strong interest stock featured on our July 26, 2013 watch list.  At the time, we said the following:

Travel website operator Expedia (EXPE) has suddenly dropped in on our watch list with a –27.38% decline in the stock price on Friday July 26, 2013.  We’re not sure that a –28% decline in quarterly earnings requires a –27% decline in the stock price.  This type of activity suggests that since June 2012, investors had not sufficiently assessed the prospects of the company before acquiring the stock.  Extreme swings in the price indicate that there is more downside risk.

Applying Edson Gould’s Speed Resistance Lines gives us a conservative downside target of $42.56 and an extreme downside target of $22.70.

Our expectation is that there is a good chance that Expedia will decline to the $34 level.  Once falling below $34, Expedia should be reviewed on a fundamental basis as a going concern.  There may be significant opportunity for this stock as the performance has been in line with industry competitors.

As is often the case, we were too conservative in believing that EXPE would achieve the rising $34.00 level.  Instead, EXPE fell exactly to the rising $42.56 level and moved higher from there (updated chart below).

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Another strong interest stock in the same July 26, 2013 posting, Equinix (EQIX) also fell only as low as the conservative downside target.  From the peak price of $229.02, EQIX spent only four trading days below $158.37.  It has been nothing but an uphill climb since.

The worst performing stock was Sears Holdings (SHLD).  Sears has essentially traded with descending peaks since 2007 with price support at around $30.  A break below $30 could result in significant loss for any remaining shareholders.  Private equity firms must be circling Sears at the prospect of a decline below the long-term support.

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The strong interest stock from the August 23, 2013 watch list was Maxim Integrated Products (MXIM). At the time we said of MXIM:

“The stock of most interest to us is Maxim Integrated Products (MXIM).  Maxim has had a great run since our March 20, 2010 highlight of the chip sector as potential investment candidates (found here).  In the chart below, since the 2008 trough, Maxim has maintained a consistent ability to rebound from the conservative downside target of $26.97.  However, if the stock cannot hold the line at $26.91, then we expect that the stock will fall to the $19.03 level.  The extreme downside target is $11.10, however, we don’t expected this to be achieved.  Potential investments at the current level along with stepped up amounts of capital at $19.03 and $15.87 is recommended.”

Since August 23, 2013, Maxim increased as much as +29.05% before falling to a 1-year gain of “only” +11%.  If we include the dividend of 3.80%, the total return would be +15% for the last year.  Below is the updated SRL for MXIM with new conservative and extreme downside targets.

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Although Maxim has fallen considerably since the June 2014 peak, we’re only willing to re-consider the stock after falling at or below the rising $27.79 level.

Investment Consideration

To put all of the gains (and losses) into perspective, we like to compare any profits with the historical market return.  Below are the annualized compounded annual growth rates (CAGR) for the last 50, 40, 30, 20 and 10 years (adjusted for inflation) [source].

years CAGR
50 5.90%
40 5.80%
30 8.42%
20 6.71%
10 6.67%

If an investor can achieve two times (2x) the 30-year CAGR in a single year, it is worth considering alternative investment opportunities while selling the principal and allowing the profits to compound in those stocks that pay a dividend.

Nasdaq 100 Watch List: June 21, 2013

Below are the Nasdaq 100 companies that are within 10% of their respective 52-week lows. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and rigorous due diligence.

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Nasdaq 100 Watch List: January 11, 2013

Below are the Nasdaq 100 companies that are within 10% of their respective 52-week lows. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and rigorous due diligence.

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Nasdaq 100 Watch List: December 12, 2012

Below are the Nasdaq 100 companies that are within 10% of their respective 52-week lows. Stocks that appear on our watch lists are not recommendations to buy. Instead, they are the starting point for doing your research and determining the best company to buy. Ideally, a stock that is purchased from this list is done after a considerable decline in the price and rigorous due diligence.

Symbol Name Price P/E EPS Yield P/B dividend payout ratio % from low
WCRX Warner Chilcott plc 11.3 7.73 1.46 4.4 -4.33 0.5 34.25% 2.26%
DLTR Dollar Tree, Inc. 38.65 15.53 2.49 - 5.61 - - 4.12%
VOD Vodafone Group 26 - -0.55 3.9 1.14 1.02 -185.45% 4.21%
BBBY Bed Bath & Beyond Inc. 58.18 13.52 4.3 - 3.34 - - 4.68%
TEVA Teva Pharmaceutical 39.47 16.08 2.45 1.9 1.58 0.81 33.06% 5.53%
MSFT Microsoft Corporation 27.24 14.72 1.85 3.4 3.34 0.92 49.73% 7.08%
INTC Intel Corporation 20.67 9.01 2.29 4.5 2.09 0.9 39.30% 7.49%
KLAC KLA-Tencor Corporation 47.08 11.45 4.11 3.4 2.36 1.6 38.93% 8.96%
MCHP Microchip Technology Inc. 31.7 30.16 1.05 4.5 3.12 1.41 134.29% 9.61%
^NDX NASDAQ-100 2,674.57 - - - - - - 21.04%

Watch List Summary

A stock that we’re interested in is Dollar Tree (DLTR).  Dollar Tree has had a substantial run in the last five years.  As the price of the stock has recently peaked at $56.34 on June 20, 2012, the decline has almost been as substantial.

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Dollar Tree (DLTR) has declined -31% from the most recent peak.  The highlight of this stock is the ability to remain in a rising trend from the low in January 2008 in spite of the -40% decline in the general stock market.

From a technical standpoint, the stock has established a significant support level at $37.71.  So far, the stock has the potential to increase from the current level to at least $42.18 level on the upside.  However, falling below the support level means that the stock could easily achieve the conservative downside target of $25.88 (extreme downside target is $18.78).

A decline to $25.88 is equal to –54%. Such a decline would not be unusual as it would only be slightly more than the decline in the stock from July 2007 at $14.74 to January 2008 at $7.41.

According to Dow Theory, Dollar Tree has the following downside targets:

  • $39.93
  • $31.72 (downside fair value)
  • $23.52

More research and a potential purchase should take place at $25.88 and below.

Watch List Performance Review

In our ongoing review of the Nasdaq 100 Watch List, we have taken the stocks from our list of December 16, 2011 (found here) and have checked their performance one year later. The companies on that list are provided below with the closing prices from December 16, 2011 to December 12, 2012.

Symbol

Name

2011 2012 % change
BMC BMC Software, Inc. 33.17 40.8 23.00%
VMED Virgin Media Inc. 20.95 35.61 69.98%
CTRP Ctrip.com Int'l 23.1 19.79 -14.33%
SYMC Symantec Corp. 15.46 18.75 21.28%
BRCM Broadcom Corp. 28.72 34.34 19.57%
Average 23.90%
NDX Nasdaq 100 Index 2238.18 2674.57 19.50%

Overall, the watch list slightly exceed the Nasdaq 100 index by +4.40%.  All stocks achieved gains of +20% within 5 months.  Virgin Media (VMED) exceeded our expectations by a wide margin. In fact, the stock only went up after being on the watch list by rising +69% in the last year.

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Nasdaq 100 Watch List: March 16, 2012

Below are the Nasdaq 100 companies that are within 20% of their respective 52-week lows. This Nasdaq 100 Watch List is strictly for the purpose of researching whether or not the companies have viable business models or are about to go out of business. These companies are deemed highly speculative unless otherwise noted.

Symbol Name Price P/E EPS Yield Price/Book payout % from Low
CHRW C.H. Robinson Worldwide 65.67 25.06 2.62 2.00 8.55 50.38% 5.41%
VOD Vodafone Group Plc 26.41 12.28 2.15 3.60 1.02 44.19% 8.64%
EA Electronic Arts Inc. 17.46 0 -0.52 0.00 2.45 0.00% 8.79%
CTRP Ctrip.com Int'l 24.68 22.09 1.12 0.00 3.03 0.00% 12.08%
APOL Apollo Group 42.59 12.08 3.53 0.00 4.07 0.00% 14.86%
FSLR First Solar 29.08 0 -0.46 0.00 0.66 0.00% 14.99%
AMZN Amazon.com 185.05 135.07 1.37 0.00 10.82 0.00% 15.07%
RIMM Research In Motion 14.38 3.39 4.25 0.00 0.68 0.00% 15.50%
VMED Virgin Media Inc. 24.18 65.18 0.37 0.70 7 43.24% 17.84%
SRCL Stericycle, Inc. 86.88 32.3 2.69 0.00 6.11 0.00% 18.93%
DTV DIRECTV 47.47 13.68 3.47 0.00 -10.53 0.00% 19.21%
EXPD Expeditors Int'l of Wash 45.81 25.59 1.79 1.10 4.71 27.93% 19.76%

Watch List Summary

A company that we’re considering buying is C.H. Robinson Worldwide (CHRW), the first company on our list.  The primary consideration that we have is always the downside risk.  We almost ignore the upside targets and projections in order to come up with an idea on the best ways to avoid loss.

The following are two perspectives on the way to view the potential downside risk of buying CHRW. First, according to Dow Theory, CHRW has three significant downside targets that should be considered carefully. The three downside targets are as follows:

  • $60.34 (fair value)
  • $52.91
  • $38.06

The way we approach the Dow Theory downside targets is to buy CHRW if it falls to $60.34 (fair value according to Dow Theory). However, we prepare ourselves for the worst case scenario by expecting that CHRW will decline to the $38.06 level, the low for 2009. With this assumption, we ensure that our initial purchase does not include 100% of what we'd normally invest. Instead, we only invest 30%, 50% or 65% of the amount that we'd ordinarily invest. The remainder of funds is set aside for the possibility that the stock declines. Naturally the greater the amount invested initially, the greater the loss or gain if the stock declines or rises.

The second way to view CHRW's downside risk is strictly from the "technical" patterns based on a chart from the last 5 years.

3-16-2012

From a "technical" standpoint, there are significant support levels at $63.50, $55 and $38. These technical levels are not very different from Dow Theory even though the technical levels based on the chart above are strictly based on the visual cues. We specifically chose the last 5 years because Charles H. Dow has said that best way to gauge a company's future prospects is usually through careful consideration of the period when earnings, book value, price and other fundamental attributes are at their worst. For us, the inclusion of 2007 to 2009 is the best reflection of the worst that has been experienced recently.  With either approach to reviewing the downside risk of a stock, the purpose is ensure that you do not get caught off guard at the prospect of a major price decline.

Watch List Performance Review

In our ongoing review of the Nasdaq 100 Watch List, we have taken the topic 5 stocks from our March 6, 2011 Nasdaq 100 Watch List.   The top 5 companies from the watch list are provided below with the closing price from March 7, 2011 to March 6, 2012.

Symbol Company 2011 2012 % Change
CSCO Cisco Systems, Inc. $18.40 $20.03 8.86%
CEPH Cephalon, Inc. $56.17 $81.49 45.08%
AMGN Amgen Inc. $52.32 $67.38 28.78%
TEVA Teva Pharmaceutical Industries  $50.32 $43.08 -14.39%
ATVI Activision Blizzard, Inc $11.27 $12.65 12.24%
Average 16.12%
NDX Nasdaq 100 $2,328.07 $2,712.78 16.52%

3-6-2011 Top 5

Our primary goal at the New Low Observer is to achieve 10% gains within the span of a year inside of our tax deferred accounts.  In the case of AMGN, CEPH and ATVI our goal of 10% within a year was accomplished within the first four months.  CSCO was the last 10% gain that arrived at the end of the 1-year period.  Teva Pharmaceutical (TEVA) severely underperformed for the remainder of the 1-year period.  CEPH did not last very long since it was acquired by none other than Teva Pharmaceutical.  Cephalon was acquired by TEVA within two months of being on our watch list.

Our specific recommendation of Cephalon at $58.99 on February 15, 2011 and the subsequent acquisition explains why we’re drawn to companies at a new low.

Teva Pharmaceuticals (TEVA) Now Slated to Acquire Cephalon (CEPH)

The plot thickens with news that Teva Pharmaceuticals (TEVA) is going to buy Cephalon (CEPH) for $81.50 (article here).  Teva’s offer exceeds Valeant Pharmaceuticals’ (VRX) previous bid of $73. 

We originally recommended Cephalon (CEPH) in August of 2009.  After our August 2009 recommendation of Cephalon, we recommended selling the stock near the high of $71 in March 2010 before the decline to $56.  In February 2011 we recommended readers consider Cephalon at the $58 level.  From there the stock has appreciated 39% in less than 3 months.  The most recent run of Cephalon was followed by a sell recommendation on March 30, 2011 at slightly above $75.  We wagered that despite the prospect of getting a sweetened offer closer to the true value of the company, we didn’t need to argue with a nearly 200% annualized return.

Our recent recommendation of Teva Pharmaceuticals (TEVA) on April 5, 2011 puts a twist on our selling of Cephalon.  It has been reported that Cephalon’s board rejected the Valeant offer and has already accepted the Teva offer. 

Interestingly, both Teva Pharmaceuticals and Valeant Pharmaceuticals got a boost in their share price at the announcement of the acquisition of Cephalon.  Typically, the acquiring company shares would decline at the announcement of a major purchase.  This seems to indicates that the market recognizes the positive impact that Cephalon will have on the ultimate acquirer.

Investors seeking the qualitative elements of Cephalon but cannot justify the purchase at the current price can hedge their bets by buying Teva at the current undervalued levels and gain the growth prospects clout of both companies. Obviously, this assumes that the deal goes through between TEVA and CEPH. If the deal with Teva and Cephalon doesn’t go through, we still believe that Teva represents a solid value at the current price. 

 

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Speculation Observation: Teva Pharmaceutical Industries (TEVA) at $50.27

A reader indicates that Teva Pharmaceutical Industries (TEVA) is a great stock although there is some confusion as to why the company is trading at such a low price. We took a look at Teva and came up with the following thoughts.
According to Value Line dated January 14, 2011, Teva has paid a dividend since 2000. The average dividend yield when the stock price peaked has been 0.69% and the average dividend yield at the low price has been 1.06%. Based on the close of trading on April 4, 2011, Teva has a dividend yield of 1.74%.
In order for the stock to trade at the historical normal low price/high yield; Teva should trade at $82.07. If Teva were to eventually trade back at the historical high price/low yield, then the stock potentially could rise to $126.
We’re going to take the conservative route and assume that Teva’s new low yield/high price is at the 1.06% yield level. This suggests that the upside target for the stock is 64%. We arrive at this conclusion assuming that all is lost for Teva to ever go back to the 10-year dividend yield range between 0.69% and 1.06%.
An additional consideration is the growth rate of the dividend, which has averaged 26% in the last 5 years. Looking ahead, we considered the most conservative approach to estimating what the stock would be if Teva were to increase the dividend by only 10%. At the historical low price/high yield (1.06%), Teva would be worth $86.79 the same time next year. Any amount below $86 and Teva would be extremely undervalued, all things being equal, or about to go out of business (it’s possible).
As with the historical dividend yield range, the price to book ratios (P/B) are correspondingly out of alignment. In the last 10-year, Teva’s P/B ratio at the highs has averaged 4.41x. At the low in the stock price, the P/B ratio has normally traded at 2.65x. With Teva trading at 2.05x book, the price could easily rise by 30% to $65 just to achieve the prior low price to book ratio range.
For the NLO team, the downside risk is much more important than the upside prospects. According to Dow Theory, Teva has the following downside targets:
  • $47.06 (fair value based on 7/2006 low)
  • $41.30
  • $29.77
Charles H. Dow indicated that the fair value of a stock is the average price that is paid by investors. The fair value is the point at which an investor, as opposed to speculators, will consider buying or selling a stock. The fair value that we’ve arrived is based on the low of July 2006. If Teva were to decline below $47.06, the prospects for $29.77 become almost inevitable. Our concern is that the macro conditions favor a market decline, which would put additional downside pressure on Teva.  As Teva declines below fair value we will provide an updated estimate of fair value upon request.

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