2 Drug Stocks in Danger Next Month

Eli Lilly and Co (LLY) and AstraZeneca plc (ADR) (AZN) tend to underperform in February

Jan 31, 2017 at 2:58 PM
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February can be a tough time for the broad market. While we previously highlighted stocks that tend to outperform during the second month of the year, we'll now take a look at specific names that have historically underperformed. The table below shows the worst February performers over the past 10 years, and data is courtesy of Schaeffer's Senior Quantitative Analyst Rocky White. Of particular interest are drug stocks Eli Lilly and Co (NYSE:LLY) and AstraZeneca plc (ADR) (NYSE:AZN).

Worst February Stocks January 30

LLY has seen a positive monthly return for February only twice in the past 10 years, averaging a 2.9% loss for the period. The stock is up 3% at $76.91 today, after the company reported better-than-expected sales before the open, boosted by the performance of new drugs. Still, LLY shares are in the red on a year-over-year basis, after a choppy performance over the last 12 months. Plus, the previously supportive 160-day moving average appears to be switching to resistance, largely containing the stock's upside today.

Analysts are largely bullish toward the drugmaker, with more than three-quarters of firms doling out "buy" or better ratings -- leaving the door open for downgrades. Meanwhile, peak open interest among all Eli Lilly and Co (NYSE:LLY) options resides at the out-of-the-money February 80 call. As front-month expiration draws closer, an unwinding of the hedges related to these positions could reinforce resistance near the round-number level.

Shifting gears, AZN is fractionally higher at $27.11, shaking off harsh comments from President Trump regarding drug pricing. The stock has seen just three positive Februaries over the last decade, and has averaged a loss of 5.3% for the month. The London-based pharmaceutical firm is also gearing up to report earnings on Thursday morning, which could be bad for AZN shares. The stock has moved to the downside in the post-earnings session in five of the past eight quarters.

AZN is down 16.7% year-over-year, with its 50-day moving average pressuring the shares lower over the past week. But the brokerage bunch is still broadly upbeat, with three out of four analysts giving the shares a "strong buy" recommendation, and not one calling them a "sell" -- leaving room for downgrades. 

Options traders seem to agree with the bullish consensus, given AZN's 50-day call/put volume ratio of 7.00 at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) -- higher than 94% of the past year's readings. If AstraZeneca plc's (ADR) (NYSE:AZN) February woes recur, a capitulation among these upbeat bettors could create more pressure.

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