Trading Volatile Big Pharma Stocks

NEW YORK (TheStreet) -- To invest in any big pharmaceutical company, you must investigate the reasons to own each specific stock in terms of its drug pipeline, patent issues and potential FDA decisions on the use of new drug therapies.

Stock screening tools such as www.ValuEngine.com and the analysis of chart patterns cannot anticipate how a big pharma stock will react to a specific news release. ValuEngine data is based upon financial information based upon company filings. It is purely a quantitative analysis. Price charts for any stock measures the risk/reward for the ups and downs of the stock based upon price momentum and moving averages.

My proprietary analytics distill the tug of war between the oil of equity fundamentals and the water of technical analysis. My models calculate value levels, pivots and risky levels that buy-and-trade investors can us to buy on weakness and sell on strength. In developing this discipline I have assumed that nine years of price data has anticipated all potential bullish or bearish events for any market or stock.

If you know a big pharma company and what they do in the drug world you can maintain a core long position in the stock. Then you use ValuEngine ratings, simple moving averages and my proprietary analytics to add to positions on weakness and reduce positions on strength.

Stocks continue to trade under a ValuEngine valuation warning with 70.3% of all stocks overvalued, 33.7% overvalued by 20% or more. We still show that 15 of 16 sectors are overvalued, 12 by double-digit percentages including today's featured medical sector, which is overvalued by17.1%. The large cap pharma industry is 16.4% overvalued.

Among the 12 big pharma stocks in today's table four are undervalued and eight are overvalued with six overvalued by more than 20%. Ten stocks gained by 9.7% to 43.6% over the last 12 months with only two losing ground. The projected performances over the next 12 months range from a loss of 3.8% to a gain of 8.2%. The 12 month trailing price-to-earnings ratios show two stocks with single digit P/E and two with P/E above 20.0. Three stocks are below their 200-day simple moving averages, and nine are above, which indicates the risk of reversion to the mean.

Here are the buy-and-trade parameters for 12 Big Pharma stocks:

Abbott Labs ( ABT) ($35.36) set a multi-year high at $38.77 on May 22. My monthly value level is $22.38 with a weekly risky level at $36.76.

Allergan ( AGN) ($85.43) set a 2013 low at $81.33 on June 24. My weekly pivot is $86.72 with a semiannual risky level at $88.65.

AstraZeneca ( AZN) ($47.99) set a multi-year high at $53.45 on May 28, then fell to $46.87 into June 24. My annual value level is $42.53 with a quarterly risky level at $49.43.

Bristol-Myers Squib ( BMY) ($46.30) set a multi-year high at $49.57 on June 3. My quarterly value level is $43.35 with a weekly risky level at $49.31.

GlaxoSmithKline ( GSK) ($50.10) set a multi-year high at $54.00 on May 28, then a low of $48.30 on June 24. My monthly value level is $47.78 with a weekly pivot at $50.57 and quarterly risky level at $51.33.

Johnson & Johnson ( JNJ) ($86.71) set a multi-year high at $89.99 on May 22, then as low as $82.12 on June 20. My monthly value level is $85.71.

Eli Lilly ( LLY) ($49.72) set a multi-year high at $58.40 on April 23, then a 2013 low at $48.68 on June 24. My semiannual value level is $39.63 with a weekly pivot at $49.62 and a quarterly risky level at $55.84.

Merck ( MRK) ($47.28) set multi-year high at $50.16 on June 4. My weekly value level is $45.82 with an annual pivot is $46.99.

Novo Nordisk ( NVO) ($158.00) set a multi-year high at $194.44 on Feb. 6, then fell to $149.49 into June 24. My annual value level is $140.02 with a quarterly pivot at $156.58 and weekly risky level at $159.71.

Novartis ( NVS) ($70.42) set a multi-year high at $75.73 on May 22, then fell to $67.67 on June 24. My annual value level is $64.86 with a quarterly pivot at $68.41 and weekly risky level at $71.97.

Pfizer ( PFE) ($28.18) set a multi-year high at $31.15 on April 23. My weekly value level is $27.06 with a monthly risky level at $28.93.

Sanofi ( SNY) ($51.82) set a multi-year high at $55.94 on May 28, then down to $49.33 into June 24. My quarterly value level is $48.92 with a weekly risky level at $53.94.

At the time of publication the author held no positions in any of the stocks mentioned.

This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.

Richard Suttmeier has an engineering degree from Georgia Tech and a master of science from Brooklyn Poly. He began his career in the financial services industry in 1972 trading U.S. Treasury securities in the primary dealer community. In 1981 he formed the Government Bond Department at LF Rothschild and helped establish that firm as a primary dealer in 1986. Richard began writing market research in 1984 and held positions as market strategist at firms such as Smith Barney, William R Hough, Joseph Stevens, and Rightside Advisors. He joined www.ValuEngine.com in 2008 producing newsletters covering the U.S. capital markets, and a universe of more than 7,000 stocks. Richard employs a "buy and trade" investment strategy and can be reached at RSuttmeier@Gmail.com.

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