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A 2.78% percent loss this year for shares of Biogen Inc. (BIIB) was accompanied by overwhelming institutional selling, thus leading this stock to underperform. But now it looks like the tide may have shifted in favor of institutional buying.
When looking for the strongest candidates for long-term upside, it often pays to look at companies with a history of solid fundamentals and then take advantage of their recently struggling prices.
Biogen, a biotech company in a leading sector with a strengthening technical chart, makes a strong case for bullish investors. For MAP, the strongest indicator of positive price momentum is by measuring potential institutional accumulation. Last month we flagged a potential institutional buy signal in Biogen, which is notable since prior to that signal there were six potential institutional sell signals for the year. We want to see evidence that the tide may be turning in favor of institutional buying when looking for new bullish candidates. In the chart below, Biogen recently shifted away from overwhelming distribution, and may start to see increasing accumulation.
MAP’s process focuses on identifying companies with healthy fundamentals accompanied by outsized unusual institutional activity to try and measure potential accumulation/distribution at the single-stock level. By studying these data points we can hypothesize which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest quality stocks.
Many of the best-performing stocks over the years have exhibited continual institutional support, telling a story of where big firms may see opportunity. A company, like Biogen, which resides in a strong sector, is growing its revenues and growing its earnings, which may keep institutions holding for years to come.
When deciding on the strongest candidate for long-term growth, we consider many technical areas important to success with a few for Biogen being:
- Recent three-month closing highs achieved ($295.61 on July 26)
- Three-month outperformance vs. the overall market (+~17.3% vs S&P 500)
- Three-month outperformance vs. the sector (+~14.5% vs XLV)
- And most importantly, institutional support
On top of a great technical picture, one should also look under Biogen’s hood to see if the fundamental picture supports a long-term investment. The areas that make a case for continual institutional support are:
- Attractive profit margin (+36%)
- Increasing three-year sales growth rate (+21.47%)
- Increasing three-year EPS growth rate (+30.91%)
Taking a look at the overall picture of the institutional accumulation/distribution activity that we monitor for the broad market, signs recently show a modest slowing of accumulation as distribution has picked up. With the potential for a further pullback, we want to bet alongside stocks in leadership positions. We feel Biogen has a great technical and fundamental setup for stock appreciation in the years to come and could remain attractive to keep institutional investors invested. Shares have been range bound since January with a strengthening technical picture, and we believe they have plenty more room to the upside in the coming years.
The Bottom Line
Biogen represents a potential buying opportunity for long-term institutional investors. Given the recent accumulation signal this year, its increasing stock ranking and its place in a strong sector, shares may continue to reward holders.
To learn more about MAP’s institutional signals please visit our site.
Disclosure: The author holds a long position in BIIB at the time of publication.
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