TEVA Pharmaceutical Added to the SMA Portfolio

By on August 5, 2017

The recent collapse in TEVA Pharmaceutical Industries Limited (TEVA) appears to be an epic buying opportunity in the world’s largest generic drug manufacturer. TEVA dropped 34% in two days after missing earnings estimates by 4 cents and cutting the dividend by 75%. There has been a lot of chatter about weakening generic drug pricing, TEVA’s increased leverage following the purchase of Allergan’s generic subsidiary Actavis for $33 billion in cash and 100 million TEVA shares, and failure to install a new CEO following the departure of Erez Vigodman in February.

Many of TEVA’s travails were already known as the stock had steadily declined from a high of $69 in July 2015. The parade of negative tidings with TEVA down 70% from its all-time high has created an enticing opportunity in an industry with demographic tailwinds. Most weak holders have been washed out amongst the extraordinarily negative sentiment.

The dividend cut will allow TEVA to reduce leverage at a much faster rate than had it maintained the generous payout.

TEVA was purchased at $20.55 late Friday in the SMA portfolio and represents a 2.5% allocation. As always, when a stock drops hard like TEVA has there may be undisclosed problems (i.e. accounting irregularities), however, these would have to be extremely serious in nature to justify such a devaluation in a short period of time.


Disclaimer: It is very difficult to outperform a buy and hold strategy. Many investors have found themselves well served over long time horizons by investing regularly in a diversified portfolio of stocks or low cost, broadly diversified indexed stock funds. Information presented is based on analysis of past data and assessments by the Tactical Timing System model. Future performance may not reflect past performance. Profitable trades are not guaranteed. No system or methodology ensures stock market profits. Although accuracy is strived for, no guarantee is made regarding the accuracy of data presented.

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