ABBV buy the dip ahead of pharma seasonAbbvie's volume has slackened somewhat after its recent triangle breakout, and it has broken its steep upward trendline. We may see a small correction late this month as Abbvie pulls back toward triangle top. However, if healthcare and pharmaceutical sector earnings continue to deliver this month (as they have so far), then Abbvie should get some buying volume along with the rest of the sector.
And then in August, a period of seasonal pharmaceutical strength begins. In The Stock Traders' Almanac, Jeffrey Hirsch makes an extensive study of seasonal stock market performance by sectors. His third-best-performing seasonal trade by average 10-year return (16.8%) is to go long biotech from early August to early March. I believe that's because this is the busy season for FDA drug application reviews.
The pharma sector does have an unusual level of political risk this year. Democrats have traditionally been hard on the pharma sector, and they look poised this year for a sweep. If the polls remain strongly blue, then we might see pharma underperform this year.
That said, I think a lot of the political risk is already priced in. Whereas most of the stocks I look at are at the very top of their 3-year valuation range in terms of forward earnings and sales, pharmaceutical companies like Abbvie and Merck are trading in the bottom quartile of their 3-year valuation range. With forward PEG ratio around 2, forward PSG ratio around 0.5, and a whopping 5% dividend, Abbvie looks really attractively valued. I've been doing a lot of deal-hunting lately, and this is one of the only stocks I've seen with both a strong growth story and a valuation I really like. The analysts and options traders like it too; Abbvie has a 9.9/10 Equity Starmine Summary Score, and near-dated options positions are heavily skewed toward calls.
