AMGEN SHARES SHOWING MORE UPSIDE POTENTIAL – ONLY AFTER A PULLBACK, THOUGH?

Amgen, Inc. stock has been partaking in the very strong trading action of the broader biotechnology sector over the last several years – but in the last few weeks in particular. How much is too much? Amgen, Inc.

stock has rallied from the 2008 low of $39.16 to just under $140 per share recently – a massive gain for such a large biotechnology company no matter how you rationalize it. As with all big, multi-year gainers like this, at some point shareholders have to ask the hard questions about future growth in revenues and earnings and whether that growth justifies a continued hold of AMGN stock. The bullish argument for AMGN… The bulls love the company's cash flows, balance sheet and obvious bullish technicals. Here's a breakdown of the particulars of their thesis: • AMGN sports an enterprise value that trumps the market capitalization of the company • Their gross profit margins (32.78%) and net profit margins (25.74%) translate into steady positive levered free cash flow of $4.86 billion • They have cash reserves of over $26 billion • They sport a current ratio of 4.36 • They have a very bullish price chart – despite being due for a short-term consolidation / pullback The bearish argument against AMGN… • Amgen's valuation is a problem for the bears: o The price-to-book comes in at 4.28 o The price-to-sales comes in at 5.36 o The “cheap on the surface” P/E of 15 (based on 2015 estimates) is problematic when compared to sales growth estimates of 2.5% and EPS growth estimates of 6.9% • The company sports a debt-to-equity ratio of 136.69% - which in and of itself isn't bad given how low interest rates are – but is still high versus most biotechnology companies. • The stock is still closer to overbought than neutral or oversold and seems to have plenty of room to correct lower before the first support even comes into play at $130.01 (versus current prices around $139). Technically speaking… Technicians love Amgen's long-term chart status as the stock is supported by multiple layers of horizontal lines and long-term trend lines. However, they do note that after the recent run up to overbought levels that a consolidation down to the low to mid-$130s would actually be healthy for the stock. Overall… As with many of the biotechnology leaders in today's market, buying AMGN shares should be done ideally when the stock pulls back to identifiable support in conjunction with neutral to oversold momentum oscillators. Don't be the last one at the punch bowl when the lights are turned on at the party.