Today we’ll walk you through a trade idea with AbbVie Inc. (NYSE: ABBV) that could deliver up to 20% returns in the next 3-6 months.
AbbVie Inc. discovers, develops, manufactures, and sells pharmaceuticals in the worldwide. The company offers various drugs like TNF blocker HUMIRA, SKYRIZI, IMBRUVICA, VENCLEXTA, CREON, and MAVYRET. Abbvie was spun off from Abbott in early 2013.
Analyst Ratings
According to TipRanks, 13 analysts are offering 12-month price targets for ABBV in the last 3 months. 11 analysts rate it a buy, 2 rates it a hold, and none have a sell rating. The average price target offered by these analysts is $128.62, which is a 14.56% upside from current levels.
Source: TipRanks.com
Recent Analyst Ratings | Source: TipRanks.com
Why ABBV is trending?
ABBV shares tumbled yesterday after the FDA, as part of its routine reviews of clinical trial data, mandated that makers of janus kinase inhibitors, or JAK inhibitors, would have to warn users against a myriad of conditions. Such drugs must now be sold with a label cautioning their users that such drugs raise the risk of serious heart-related events, cancer, blood clots, and even death.
FDA’s requirement impacts AbbVie’s drug Rinvoq, Pfizer’s drug Xeljanz, and Eli Lilly’s Olumiant. All three are JAK inhibitors for arthritis and other inflammatory conditions. Interestingly, the FDA’s decision was rooted in data regarding Pfizer’s arthritis medicine Xeljanz.
The stock’s current tumble to a three-month low was also buoyed by the upcoming patent cliff of the company’s major drug, Humira. Humira is set to face biosimilar rivals in the U.S. in 2023.
However, the stock remains fundamentally strong and AbbVie’s year-over-year sales and earnings growth has consistently increased. In the second quarter, adjusted AbbVie earnings popped by 30% to $3.11 per share while sales jumped nearly 34%, hitting $13.96 billion and beating analysts’ forecasts.
There are also clear tailwinds for the stock. The company’s arthritis medicine, Rinvoq’s patents have a long way to go until patent expiration, and ABBV’s drug Skyrizi remains a big winner as well. The pharmaceutical giant also still has more than two dozen drugs in its portfolio, many of which are already bigger franchises than Rinvoq, and even more in the research and development pipeline.
Overall, this could very well be a pullback before the next upmove. Here’s how to trade ABBV now.
ABBV Chart
On analysis, there are mixed indications on the daily chart of ABBV.
ABBV – Daily Chart
#1 Oversold RSI: The RSI is currently near oversold levels, indicating that a reversal may be imminent.
#2 Price Above MA: The stock is currently above its 200-day SMA, indicating that the bulls still have control. The stock is also trading near a support area currently, which is marked as a blue color dotted line.
However, multiple indicators show weakness for ABBV. The MACD line is currently below the signal line, while the %K line of the stochastic is below the %D line. All these point to the possibility of a further decline before moving higher again.
Below is the bullish and bearish play for ABBV.
Recommended Bullish Trade (based on the chart)
Buy Levels: If you want to get in on this trade, the buy level for ABBV is in two scenarios. These are marked as green color dotted lines in the daily chart.
- Buy Level #1: You can purchase the shares of ABBV if it corrects to the price of $100.00.
- Buy Level #2: You can purchase the shares of ABBV above the price of $122.00.
Important Note: Make sure that you only enter the trade once the daily close is above the recommended price level.
TP: Our target prices for various buy levels are as follows
- The target prices for Buy Level #1 ($100.00) are $110 and $120 in the next 3 to 6 months.
- The target prices for Buy Level #2 ($122.00) are $130 and $140 in the next 3 to 6 months.
SL: To limit risk, place a stop loss at the following levels.
- The stop loss for Buy Level #1 ($100.00) is $95.00.
- The stop loss for Buy Level #2 ($122.00) is $117.30.
Note that the stop loss is on a closing basis.
Target Upside: Our target potential upside is 6% to 20% in the next 3-6 months.
- Entry at Buy Level #1 ($100.00): For a risk of $5.00, our first target reward is $10.00 and the second target reward is $20.00. This is a nearly 1:2 and 1:4 risk-reward trade.
- Entry at Buy Level #2 ($122.00): For a risk of $4.70, our first target reward is $8.00 and the second target reward is $18.00. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers 2x to 4x more potential upside than downside.
Risks to Consider: The stock may reverse its overall trend if it breaks down from the near-term support level with high volume. The sell-off of the stock could also be triggered in case of any negative news, overall weakness in the market, or any regulatory changes in the sector.
Recommended Bearish Trade (based on the chart)
In case the stock breaks down from the near-term support level with high volume, it would point to an upcoming short-term correction. In that case, below are the entry level, stop loss level, and target prices.
Sell Level: You can take short positions on ABBV below the price of around $108.00. This sell level is marked as a red color dotted line in the chart.
Important Note: Make sure that you only enter the trade once the daily close is below the recommended price level.
TP: Our first target prices is $100. If the stock declines below that level with a high volume, the second target price is $90.00.
SL: To limit risk, place a stop loss at $113.00. Note that this stop loss is on a closing basis.
Our target potential downside is 7% to 17% in the next 3-6 months.
For a risk of $5.00, our first target reward is $8.00 and the second target reward is $18.00. This is a nearly 1:2 and 1:4 risk-reward trade.
In other words, this trade offers nearly 2x to 4x rewards compared to the risks.
Risks to Consider: The stock may reverse its overall trend if it breaks upwards with high volume. The breakout of the stock could be triggered in case of any positive news, overall strength in the market, or any regulatory changes in its sector.
Happy Trading!
— Trades of the Day Research Team
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