All good things must come to an end and the S&P 500 snapped a six-week winning streak on Friday. Materials and Real Estate names led the way lower this wek, while Healthcare stocks were a beacon of strength.
Retailers dominated the earnings calendar this past week. Some like Lowe’s (LOW) and Target (TGT) had a bullish outlook, while Home Depot (HD) and Kohl’s (KSS) disappointed investors with their quarterly reports. The sector will be under close scrutiny in 2019, as a late Thanksgiving shortens the traditional holiday shopping season.
Looking ahead to next week, we’ll see some more retail earnings trickle in, even though the trading calendar will be abbreviated. U.S. stock markets are closed for the Thanksgiving holiday on Thursday and only open for the first half of the session on Friday.
On the economic front, all eyes will be on the October Durable Goods Orders report on Wednesday. The consensus analyst estimate calls for a 0.9% decline in the headline number and a 0.4% increase on the core rate (excluding transportation), a month after both readings were in the red.
Low trading volume can breed increased volatility and anyone paying close attention to the price action this week can usually take advantage of some unusually large swings to make opportune buys and sells.
On Friday, strategists at JP Morgan suggested that Value stocks currently present a compelling investment, citing:
“For the S&P 500, only ~20% of the Momentum/Value rotation is complete. Correlation between Momentum and Value stocks remains close to cycle lows. Value does well when its correlation to Momentum is rising from extremely
low levels — currently the case. Forward PE premium of Momentum stocks
relative to the market has narrowed to 4.8x from July cycle peak of 7.9x. This suggests that the sell-off in highest momentum stocks has more room to run.”
Knowing what and when to buy can be challenging for any investor. However, the fact remains that attractive investments are out there, if you’re willing to dig a little deeper.
Stock of the Week: Horizon Pharma (HZNP)
The company only started business in 2008, but stands up well against more- established stalwarts of the pharmaceutical business. Horizon Pharma offers investors a little bit of everything, from growth at a reasonable price, to a pipeline bursting with opportunities in rheumatology and rare diseases.
The stock gained 4% this week, as healthcare name added a key date on the calendar for one of its pipeline products
Looking ahead, these gains should keep on coming. Here’s why:
It was announced on Wednesday that the Food and Drug Administration (FDA) will host a meeting on Dec. 13, to talk about the company’s application for teprotumumab, to treat active thyroid eye disease (TED).
TED affects 15k-20k patients each year in the U.S. and there are no existing FDA-approved treatments. Teprotumumab has already been designated an orphan drug, with fast-track and breakthrough therapy status. The company estimates the product could generate $750 million of peak annual revenue in the U.S.
Horizon currently has 11 products on the market, led by Krystexxa, for uncontrollable gout. Management believes that Krystexxa can also generate up to $750 million of annual sales in the U.S. and the company is currently seeking approval for a new indication, to increase the product’s addressable market.
Earlier this month, management posted quarter results that exceeded the consensus analyst estimates. Horizon Pharma earned $0.64 a share in the third quarter, as revenue increased 3% from a year ago, to $335.5 million. Upside in the period was a result of 14% growth in the sales of orphan and rheumatology drugs, which account for about three-quarters of overall revenue.
The fact that the company can fund its attractive clinical pipeline with internal profits is rare for a firm of its size. Many businesses developing new orphan drugs in rare diseases are several years away from profitability.
At the same time, many established pharmaceutical names can’t match the 12% compound annual growth that Horizon Pharma is expected to average over the next two years. With that in mind, the stock appears reasonably valued at 16.3x expected full-year earnings of $1.93 a share.
It’s also worth noting that Horizon Pharma carries a Smart Score of 10/10 on TipRanks. This new proprietary metric utilizes Big Data to rank stocks based on 8 key factors that have historically been a precursor of future outperformance.
On top of the positive aspects mentioned already, Smart Score says the company has solid price technicals, in addition to positive sentiment from hedge funds and investment bloggers.
FYI: This is just 1 of the 20+ stocks selected for the Smart Investor portfolio. That’s where we share more detailed insights on our weekly stock picks. You may also want to learn more about how we use TipRanks indicators to find stocks that are primed to outperform. Discover the Smart Investor portfolio here.