Following the acquisition of a biotech firm, this healthcare stock got knocked down—making this a perfect entry position for those who haven't yet invested or a great dollar-cost averaging opportunity for those that want to pad their positions—explains Jimmy Mengel, editor of The Crow's Nest.
AbbVie (ABBV) acquired cancer biotech company Pharmacyclics (PCYC) for $21 billion. It will allow the company to get into the multi-billion-dollar blood cancer market.
Pharmacyclics' drug-Imbruvica-has been approved for two blood cancers: a rare lymphoma and a form of leukemia. In January, the FDA greenlit Imbruvica's use for a rare form of cancer affecting the immune system.
CEO Richard Gonzalez predicts that Imbruvica can generate peak annual sales of $7 billion a year. He also notes that that deal is expected to boost earnings by more than $0.60 per share by 2019.
Meanwhile, AbbVie's blockbuster drug-Humira-is currently being updated to provide advantages over the original drug, which could be crucial when Humira's patent expires in 2016. "It's a fundamental change in the formulation of Humira," Gonzalez said. "I wouldn't describe it as a tweak."
Some people sold off their positions in Abbvie because they thought the company may have overpaid for Pharmacyclics. Others are concerned that once Humira's patent expires, the company will get beat up by generics.
Long-term, I do not share the same fears. And I'm not alone. In fact, a few big analysts are extremely bullish, like Jefferies, who cited an "iceberg" of positive catalysts for the stock in 2015 and beyond.
They are predicting an $80 a share price point for AbbVie and have even cited the company as their Top Global Pharma Pick. Deutsche Bank also put an $80 target on the stock. If we take that at face value, the stock's current price is a great discount.
You could be looking at 40% gains by the end of the year. Add that to a 3.2% dividend and you're off to the races.
We're buying AbbVie as a long-term dividend position under $65. I would also recommend adding it to your long-term portfolio as a dividend reinvestment plan position.
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