The Must-See Biotech Buy Signal

Amgen stock could be headed for another record high, if history repeats itself

by Patrick Martin

Published on Sep 27, 2017 at 3:55 PM

With September winding down and the fourth quarter quickly approaching, some stocks appear poised to take a leap forward. The biotech sector has had an excellent year -- and the fun may not be over yet, considering the SPDR S&P Biotech ETF (XBI) has been one of the best-performing exchange-traded funds (ETFs) in the fourth quarter. Per data from Schaeffer's Senior Quantitative Analyst Rocky White, XBI has averaged a fourth-quarter return of 3.93% over the past 10 years, and has been positive 70% of the time. Among biotech stocks, one in particular could also be in for a strong close to 2017, if past is prologue: Amgen, Inc. (NASDAQ:AMGN ).

4q etf performance

XBI Looks To Finish The Year Strong

Already, XBI has added 43% year-to-date, and is coming off a two-year high of $85.68 last Thursday -- most recently seen trading at $84.71. The shares' 80-day moving average has contained almost all pullbacks since January, while the $83 region has served as a short-term floor since late August.

XBI's solid stretch has had short sellers jumping ship. Short interest decreased by 10% during the last two reporting periods to 24.84 million shares. However, it would take nearly nine days for shorts to cover these remaining bearish bets, at XBI's average daily trading volume, meaning there's ample sideline cash to fuel a bigger rally.

Amgen Stock Could Take Aim at New Highs

Amgen stock has tacked on 26% year-to-date -- topping out at a record high of $190.10 on Sept. 15, and last seen trading at $184.93 -- and could be headed for more upside should history repeat itself. AMGN is one of the best stocks to own on the S&P 500 Index (SPX) in the fourth quarter, where, according to White, it has averaged an 8.47% gain over the last decade, and has closed in positive territory eight out of 10 times.

Analysts remain unconvinced, though, with 12 of the18 brokerages covering AMGN rating the stock a "hold." Plus, the average 12-month price target of $187.25 sits just above current trading levels. This indicates that there is plenty of room for upgrades and/or price-target hikes to draw more buyers to AMGN's table.

Plus, those looking to bet on AMGN's near-term trajectory with options are in luck. In fact, Amgen has consistently rewarded premium buyers over the past year, per its Schaeffer's Volatility Scorecard (SVS) of 97. In other words, AMGN has tended to make outsized moves, relative to what the options market has priced in.

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