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Summary

  • I swapped out of Hilton, because I felt it was expensively valued on 2015 earnings estimates and growth projections.
  • Biogen is a high earnings growth story which is fairly valued on 2015 earnings estimates and growth projections.
  • Biogen has a very high return on assets in addition to the great near- and long-term earnings growth expectations.

I sold Hilton Worldwide Holdings (NYSE:HLT) from my growth portfolio because I felt it was time to lock up a good gain at the time in. I moved shares of Biogen Idec Inc. (NASDAQ:BIIB) from my relegation league to the growth portfolio after selling Hilton. Biogen Idec Inc, is a biotechnology company that discovers, develops, manufactures and markets therapies for the treatment of multiple sclerosis and other autoimmune disorders, neurodegenerative diseases and hemophilia. On July 23, 2014, Biogen reported second quarter earnings of $3.49 per share, which beat the consensus of analysts' estimates by $0.65. In the past year, the company's stock is up 50.69% and is beating the S&P 500 (NYSEARCA:SPY), which has gained 16.96% in the same time frame. I initiated my position in Biogen on March 17, 2014 and am down 0.89% on my position.

I sold my shares in Hilton, because I wanted to lock in some profits. Hilton Worldwide Holdings Inc. is engaged in the ownership, leasing, management, development, and franchising of hotels, resorts, and timeshare properties. Its business is segmented into three areas, Management and Franchise, Ownership, and Timeshare. On May 9, 2014, the company reported first quarter earnings of $0.13 per share, which beat the consensus of analysts' estimates by $0.04. The company IPO'd back in mid-December 2013, and is up 17.4% and is beating the S&P 500, which has gained 11.46% in the same time frame. Let's now take a look at both stocks on a fundamental, financial, and technical basis.

Hilton Worldwide Holdings

The company currently trades at a trailing 12-month P/E ratio of 48.54, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 30.89 is currently expensively priced for the future in terms of the right here, right now. The 1-year PEG ratio (2.11), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is expensively priced based on a 1-year EPS growth rate of 23.04%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 23.04%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 24.8%.

On a financial basis, the things I look for are the dividend payouts, return on assets, equity, and investment. The company does not sport a dividend to speak of, but is sporting return on assets, equity, and investment values of 2%, 15.5%, and 6.4%, respectively, which are all respectable values. In this particular instance, I skipped the dividend aspect of the financials, because the stock is in my growth portfolio, and in the growth portfolio, a stock does not have to have a dividend.

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Looking first at the relative strength index chart [RSI] at the top, I see the stock near overbought territory with a current value of 65.72. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line, with the divergence bars decreasing in height, indicating bearish momentum. As for the stock price itself ($25.24), I'm looking at $26.00 to act as resistance and $24.65 to act as support, for a risk/reward ratio which plays out to be -2.34% to 3.01%.

Biogen Idec Inc.

The company currently trades at a trailing 12-month P/E ratio of 37.38, which is expensively priced, but I mainly like to purchase a stock based on where the company is going in the future as opposed to what it has done in the past. On that note, the 1-year forward-looking P/E ratio of 21.33 is currently fairly priced for the future in terms of the right here, right now. The 1-year PEG ratio (1.54), which measures the ratio of the price you're currently paying for the trailing 12-month earnings on the stock while dividing it by the earnings growth of the company for a specified amount of time (I like looking at a 1-year horizon), tells me that the company is fairly priced based on a 1-year EPS growth rate of 24.33%. The company has great near-term future earnings growth potential with a projected EPS growth rate of 24.33%. In addition, the company has great long-term future earnings growth potential with a projected EPS growth rate of 21.25%.

On a financial basis, the things I look for are the dividend payouts, return on assets, equity, and investment. The company does not sport a dividend to speak of, but is sporting return on assets, equity, and investment values of 17.7%, 24.1%, and 20.7%, respectively, which are all respectable values. In this particular instance, I skipped the dividend aspect of the financials because the stock is in my growth portfolio, and in the growth portfolio, a stock does not have to have a dividend.

The really high return on assets value (17.7%) is important because it is a measure of how profitable the company is relative to its assets, telling us how efficient a management team is at using its assets to generate earnings (for comparison purposes, Biogen has the third highest ROA in mid-cap and higher biotechnology industry behind Questcor Pharmaceuticals, Inc. (QCOR), which sports an ROA of 50.8%, and Gilead Sciences Inc. (NASDAQ:GILD), which sports an ROA of 28.6%.

(click to enlarge)

Looking first at the relative strength index chart [RSI] at the top, I see the stock is near overbought territory, with a current value of 63.81. I will look at the moving average convergence-divergence [MACD] chart next. I see that the black line is above the red line, with the divergence bars increasing in height, indicating the bullish momentum. As for the stock price itself ($336.39), I'm looking at $340.00 to act as resistance and $333.16 to act as support, for a risk/reward ratio which plays out to be -0.96% to 1.07%.

Wrap Up

I sold Hilton for a 17.93% gain or 152.48% on an annualized basis. Again, I only sold Hilton because it made me a quick gain, and I wanted to lock up some profits. Hilton is a very excellent company with great near-term earnings growth expectations, but it seems to be expensively valued on those growth expectations. Not to mention, I believe the stock is expensively valued on 2015 earnings estimates.

Biogen on the other hand is not only a growth stock, but it is also a fair value stock based on 2015 earnings estimates. The stock had a major ceiling of resistance at $333 and since it broke above that value recently on large volume, I believe that $333 will act as a floor of support. This can only mean that I believe Biogen is going to move to the upside. However, if the market begins to falter in a big way, this stock won't be immune to a drop in price. Biogen is a biotech company which has revolutionary medical discoveries and reported spectacular earnings last week. The stock jumped 11.17% on earnings last week not only because of a top and bottom line beat, but also because the company guided higher for the rest of the year. I'm staying long on this name, even though I'm down in the dumps on it.

Disclaimer: This article is meant to serve as a journal for myself as to the rationale of why I bought/sold this stock when I look back on it in the future. These are only my personal opinions and you should do your own homework. Only you are responsible for what you trade and happy investing!

Disclosure: The author is long BIIB, SPY, GILD. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article.

Source: Biogen Idec Should Have A Strong Floor Of Support At These Levels