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Betting On Strength With ALXN

09/30/11 08:59:45 AM
by Billy Williams

Using a combination of fundamental and technical factors, you can spot tomorrow's high-flying stocks today.

Security:   ALXN
Position:   Buy

Selecting high-performing stocks with solid fundamentals takes a combination of detective work and attention to detail. While it may be true that not all winning stocks have the best fundamentals at any given time, it is true that stocks with at least some solid fundamentals have ideal technical factors to support the case for a high performance. Most, if not all, deciding factors on stock selection can be singled out by using a sound model for identifying key fundamental factors plus a proven set of technical patterns that give you a statistical edge for profitable stock trading.

That said, there can be compelling technical price action that can warrant special consideration when pulling the trigger and entering a position in a given stock, though there may be some negative characteristics that would otherwise keep you from making a trade.

This is why Alexion Pharmaceuticals Inc. (ALXN) is such a compelling stock for traders at this moment. See Figure 1.

FIGURE 1: ALXN, WEEKLY. ALXN's weekly chart shows price making a strong upward move with conviction, taking price to higher levels.
Graphic provided by:
ALXN is a biopharmaceutical company, engaging in the discovery, development, and commercialization of biologic therapeutic products for treating patients with severe and life-threatening disease states in the US, Europe, Latin America, Japan, and Asia Pacific.

On the fundamental side, ALXN has a $12.6 billion market capitalization, almost no debt, quarterly revenue growth of 47%, $368 million in cash, a low stock float of 183 million shares, a respectable profit margin of just under 18% on just under $650 million in revenue, and ranks the highest in relative strength (RS) in its industry.

ALXN and its entire sector as a whole is under steady accumulation, according to recent reports, with "Investor's Business Daily" giving it an "A-" accumulation ranking as well as an earnings per share ranking of 99. See Figure 2.

FIGURE 2: ALXN, DAILY. Going down to the daily chart, you can spot several entry points in ALXN as it trades higher, despite the downturn in the stock market.
Graphic provided by:
While ALXN is obviously a strong stock in a sector that is holding up well during economically difficult times, there are some troubling signs that would otherwise give you pause about taking a position. Principally, the market as a whole is experiencing a correction, and though ALXN is holding up just off 3.8% of its 53-week price high, the market's downturn could act like an albatross around the neck of this stock, weighing down its upward movement.

However, a close look at its technical outlook tells a slightly different story that could present a compelling case to trade this stock. First, the stock is trading near its all-time high, and according to research in the white paper "Does Trend Following Work On Stocks?" by Black Star Funds, stocks at these price levels tend to outperform others. In fact, this characteristic of the study presents the case that stocks at these price levels can likely emerge as the next generation of stock leadership that leads the overall market to higher levels.

Second, from August 2010 into the end of that year, ALXN had a big runup in price, revealing high levels of momentum that took the share's price higher, with price trading well above its 20-day and 50-day simple moving average (SMA).

This last point is of particular importance because despite the current state of the stock market at any given time, there are some stocks that will do well despite the overall market. These tend to be the strongest performers in the market, and when you look at it from that context, you can spot tomorrow's winners before everyone else. With stocks that end up being discussed on the late-night financial news media and featured by Jim Cramer, by that time it is too late to squeeze a huge amount of profit potential out of a particular stock and ALXN could be one of those stocks that you spot today that could end up tomorrow's featured winners and you can do it by using the proper application of fundamental and technical factors.

Billy Williams

Billy Williams has been trading the markets for 27 years, specializing in momentum trading with stocks and options.

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