Trading Guidelines for J&J, Merck, Pfizer, 8 Other Drug Companies

NEW YORK (TheStreet) -- Investors have so many choices when allocating cash to pharmaceutical stocks that making prudent decisions can be difficult.

But there are ways to cut through the clutter, if investors consider the numbers.

Read more: 4 Stocks Warren Buffett Is Selling in 2014

There are 11 pharmaceutical stocks with market capitalizations above $50 billion. Three are components of the Dow Jones Industrial Average, with Johnson & Johnson (JNJ)  up 14% year to date, Merck (MRK)  up 19% and Pfizer (PFE)  down 3.8%, compared with the Dow, which is up 2.7%.

Pharmaceutical stocks aren't as volatile as biotechnology stocks, but some have drugs in development, which makes them sensitive to positive or negative reports from the U.S. Food and Drug Administration.

The first "crunching the numbers" table shows that the biggest year-to-date gainers are Eli Lilly (LLY) up 28%, Novo-Nordisk (NVO) up 29%, and AstraZeneca (AZN) up 23%.

Four companies have 12-month trailing price-to-earnings ratios above 20.0. Bristol-Meyers (BMY) has the highest P/E at 27.1.

Big-cap pharmaceuticals have dividend yields, though most biotech stocks don't. GlaxoSmithKline (GSK) may be the biggest year-to-date loser, down 12% but that is partially offset by a dividend yield of 5.5%.

All 11 stocks in the first table have rising or overbought 12x3x3 weekly slow stochastics, and only GlaxoSmithKline is below its five-week modified moving average.

Let's take a look at each stock's all-time or multiyear high, versus the risky levels in the second table.

Abbott Labs (ABT) ($42.56) set an all-time intraday high of $43.27, and this week's risky level is $43.54.

AstraZeneca ($73.94) set an all-time intraday high of $82.68 on May 1, and this month's risky level is $85.23.

Bristol-Meyers ($50.69) set a multiyear intraday high of $57.49 on March 6 and then faded to a close on Thursday below its 200-day simple moving average at $50.90 with quarterly and semiannual risky levels at $52.96 and $53.18, respectively.

Read more: Merck's Future Looks Healthier

GlaxoSmithKline ($46.93) set a multiyear intraday high of $56.73 on Feb. 18 and then declined to as low as $46.01 on Aug. 8 with annual value levels at $44.40 and $43.32.

Johnson & Johnson ($104.55) set an all-time intraday high of $106.74 on July 7 and then declined to $98.80 on Aug. 1. A semiannual value level is $101.33 with monthly and quarterly risky levels at $107.46 and $108.81, respectively.

Eli Lilly ($65.18) set a multiyear intraday high of $65.70 on July 24, with a quarterly pivot at $64.62 and a monthly risky level at $69.21.

Merck ($60.10) set a multiyear intraday high of $61.33 on Sept. 8, with a monthly risky level at $65.40.

Novo-Nordisk ($46.78) set an all-time intraday high of $48.42 on Feb. 25, with that high being challenged again with semiannual and monthly risky levels at $47.49 and $52.93, respectively.

Novartis NVS ($94.36) set an all-time intraday high of $94.65 on Sept. 3, with monthly and quarterly risky levels at $95.32 and $97.11, respectively.

Pfizer ($29.63) set a multiyear intraday high of $32.96 on March 6 and then declined to as low as $27.87 on Aug. 8, below its semiannual value level at $28.66.

Sanofi-Aventis SNY ($55.73) set an all-time intraday high of $56.00 on Sept. 10, with a semiannual risky level at $59.84.

Crunching the Numbers with Richard Suttmeier: Moving Averages & Stochastics


This table provides the technical status for the stocks profiled in today's report.

I show the 12-month trailing P/E ratio and dividend yield.

Read more: Novo-Nordisk: Today's Featured Drugs Winner

There are five columns with moving average titles: Five-Week Modified Moving Average, 21-Day Simple Moving Average, 50-Day Simple Moving Average, 200-Day Simple Moving Average and the 200-Week Simple Moving Average.

The column labeled 12x3x3 Weekly Slow Stochastics shows the pattern on each weekly chart with readings from Oversold, Rising, Overbought, Declining or Flat.

Interpretations: Stocks below a moving average are listed in red.

Five-Week Modified Moving Average (MMA) is one of two indicators that define whether a weekly chart profile is positive, neutral or negative. The other is the status of the 12x3x3 weekly slow stochastic.

A stock with a positive technical rating is above its five-week MMA with rising or overbought stochastics.

A stock with a negative technical rating is below its five-week MMA with declining or oversold stochastics.

A stock with a neutral technical rating has a profile that isn't positive or negative.

The 200-Week Simple Moving Average (SMA) is considered a long-term technical support or resistance and as a "reversion to the mean" over a rolling three-to-five-year horizon.

The 21-Day Simple Moving Average is a short-term technical support or resistance used by many hedge fund traders to adjust positions. A stock above its 21-day SMA will likely move higher over a rolling three-to-five-day horizon and vice versa.

The 50-Day Simple Moving Average is also a technical support or resistance used by many strategists and commentators on financial television.

The 200-Day Simple Moving Average is another technical support or resistance, and I consider this level a shorter-term "reversion to the mean" over a rolling six-to-12-month horizon.

Crunching the Numbers with Richard Suttmeier: Earnings & Where to Buy & Where to Sell

Value Levels, Pivots and Risky Levels are calculated based upon the last nine weekly closes (W), nine monthly closes (M), nine quarterly closes (Q), nine semiannual closes (S) and nine annual closes (A). I have one column for pivots, which is a magnet for the period shown. The columns to the left of the pivots are first and second value levels. The columns to the right of the pivots are first and second risky levels.

Investors who wish to buy a stock should use a good-'til-canceled (GTC) limit order to buy weakness to a value level. Investors who want to sell a stock should use a GTC limit order to sell strength to a risky level.

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

Follow @Suttmeier

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff

 

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.

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