A New Alpha Algorithm Favorite Plus a Triple-Digit-Percentage Options Gain

This week’s Alpha Algorithm identified a stock that has shot to the top of the favorite charts among the 30-plus strategies I monitor just in the past week.

A half-dozen strategies piled into this big pharma bet in just the past five trading days.

It has been rare to see such a massive shift in sentiment about a single stock over such a short period.

Incorporated in 2012 and based in North Chicago, Illinois, AbbVie Inc. (ABBV) is one of the nation’s largest pharmaceutical companies. The company’s three most important drugs on the market today are Humira (rheumatoid arthritis), Imbruvica (cancer) and Viekira Pak (Hepatitis C). AbbVie started its corporate life as a spin-off of Abbott Laboratories (ABT), whose dividend history is included in AbbVie’s for the purposes of the Alpha Algorithm strategies.

AbbVie (ABBV) versus the S&P 500 year to date

11 Top Investment Strategies Betting on AbbVie Inc. (ABBV)

1. Dividend Aristocrats

The stock is among those in the S&P 500 that have increased dividends for at least 25 consecutive years.

2. Dividend Dogs

One of the five highest-yielding stocks among each of the 10 sectors tracked in the S&P 500.

3. High and Steady Dividend

The stock is one of 50 dividend-paying companies from the S&P 1,500 Composite Index that has increased dividends for at least 20 consecutive years.

4. Small-Cap/Value Tilt

Selected using a multi-factor modeling approach, the stock is a smaller-cap or value stock designed to enhance portfolio risk/return characteristics.

5. IPO Index

The strategy tracks a market-cap-weighted index of the 100 largest U.S. initial public offerings (IPOs) over the first 1,000 trading days of each stock. Stocks must pass additional quantitative screens as well.

6. Insider and Analyst Sentiment

It is one of 100 stocks chosen from the S&P 1500 based on positive sentiment among those “insiders” closest to a company’s financials and business prospects, such as top management, directors, large institutional holders and the Wall Street research analysts who follow the company.

7. Insider Sentiment

It is one of 100 equally weighted U.S.-listed large- and midcap stocks chosen based on trading in company stock by corporate insiders, price momentum and trailing 12-month volatility. Specifically, it looks at the increase in insider holdings.

8. Large-Cap Alpha Growth

The company has been chosen as part of an alpha-seeking index that selects and weights growth stocks from the S&P 500 Growth Index. The proprietary methodology uses price appreciation — among more traditional factors — and weights the constituents based on their respective growth scores.

9. Fundamental Strength

This is a top U.S. stock based on fundamentals measured by book value, cash flow, sales and dividends.

10. Goldman Sachs’ Active Beta

The stock is selected according to four factors — value, quality, momentum and low volatility. These, in turn, are based on criteria including book value, sales and cash flow scaled by share price, profit/assets or return on equity (ROE), risk-adjusted returns and daily standard deviation of returns.

11. Exponential Technologies

The stock is part of a strategy that invests in nine different fields deemed to be vast growth “exponential technologies”: big data and analytics, nanotechnology, medicine, networks, energy and environmental systems, robotics, 3-D printing, bioinformatics and financial services.

Recommendation

Buy AbbVie Inc. (ABBV) at market today. Place your initial stop at a wide $83.00.

Options

If you want to play the options, I recommend the ABBV January $92.50 calls (ABBV180119C00092500), which last traded at $4.00 and expire on Jan. 19.

Portfolio Update

Sell all of your remaining Applied Materials October $47 calls  for a 108.25% gain.

Sell all of your Microsoft October $70 calls for a solid 62.82% gain.

Sell all of your JNJ October $130 calls to break even on this trade.

Raise your stop in PayPal Holdings Inc. (PYPL) to $65.10 to lock in at least a 20% gain.

Raise your stop in Micron Technologies (MU) to $39.60 to lock in at least a 10% gain.

Raise your stop in NVIDIA Coproration (NVDA) to $183.15 to lock in at least a 10% gain.

Raise your stop in McDonald’s (MCD) to $157.90 to lock in at least a 10% gain.

Raise your stop in Applied Materials (AMAT) to $52.30 to lock in at least a 10% gain.

Raise your stop in Johnson & Johnson (JNJ) to $136.15 to lock in at least a 10% gain.

Sincerely,

Nicholas A. Vardy