The launch of anti-allergic cetirizine tablets in the US will give it the early mover advantage
The stock price of Wockhardt rose by 4 per cent after the company announced the launch of anti-allergic cetirizine tablets in the US market. Cetirizine, the generic for Zyrtec brand owned by Pfizer, has annual sales of $1.4 billion.
Other companies will soon get US FDA approval to launch the drug, resulting in a crash in the prices, but Wockhardt will have an early mover advantage.
Unlike other drugs going off-patent, cetirizine has another advantage. It has moved from being a prescription product to an OTC one and this would translate into better growth and margins.
The company will distribute cetirizine, besides the 56 products in its US portfolio, through Morton Grove Pharma, a US-based generic company acquired by it in October 2007. Morton Grove, with sales of $52 million largely from dermatological products, is expected to boost Wockhardt’s US sales efforts.
Wockhardt has also entered into a strategic tie-up with Leiner Health Products for distributing cetirizine to private label OTC markets.
Whereas the company has been active in the US market in the last seven years, sales from this region account for only 8 per cent of total sales for the nine-month period ended September 2007.
Analysts say the company’s product development to filing process has been slow and it has products in some highly competitive segments.
Europe accounts for 59 per cent of the company’s sales as it offers better opportunities, higher margins and is a relatively easier market to breach.
The company reported a 69 per cent jump in sales to Rs 738 crore for the quarter ended September 2007, largely on the back of its acquisition of France-based Negma Labs.
While the operating margins were up 230 basis points to 24.5 on account of lower R&D expenses, they were flat for the nine months ended September. At the current price of Rs 434, the company trades at 12 times estimated 2008 (December year end) EPS of Rs 36 and is attractively priced.
Understanding Short Term Trading
Before I begin, this blog is not for intraday traders. My definition of short term implies duration of around 2 to 3 months.
Short Term stock picking is no rocket science, but rather a visual interpretation of technical charts. A basic moving average on a time frame chart will show the direction of the securities movement.
Moving averages is a mathematical results calculated by averaging a number of past data points. Moving averages (MA) in it's basic form is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. Once the value of MA has been calculated, they are plotted onto a chart and then connected to create a moving average line. Typical moving averages used for short term trading are 50 MA and 100 MA.
Types of Moving Averages
1) Simple Moving Average (SMA)
SMA is calculated by taking the arithmetic mean of a given set of values on a rolling window of timeframe. The usefulness of the SMA is limited because each point in the data series is weighted the same, regardless of where it occurs in the sequence. Critics argue that the most recent data is more significant than the older data and should have a greater influence on the final result.
2) Exponential Moving Average (EMA)
EMA overcomes the limits of SMA, where more weight is given to the recent prices in an attempt to make it more responsive to new information. When calculating the first point of the EMA, we may notice that there is no value available to use as the previous EMA. This small problem can be solved by starting the calculation with a simple moving average and continuing on with calculating the EMA.
The primary functions of a moving average is to identify trends and reversals, measure the strength of an asset's momentum and determine potential areas where an asset will find support or resistance. Moving averages are lagging indicator, which means they do not predict new trend, but confirm trends once they have been established.
A stock is deemed to be in an uptrend when the price is above a moving average and the average is sloping upward. Conversely, a trader will use a price below a downward sloping average to confirm a downtrend. Many traders will only consider holding a long position in an asset when the price is trading above a moving average.
In general, short-term momentum can be gauged by looking at moving averages that focus on time periods of 50 days or less. Looking at moving averages that are created with a period of 50 to 100 days is generally regarded as a good measure of medium-term momentum. Finally, any moving average that uses 100 days or more in the calculation can be used as a measure of long-term momentum.
Support, resistence and stoploss can be infered by referring the closet MA below or above the market price. The other factor that is used in short term momentum is the trading volume. The moving averages along with the trading volume can provide a better insight to short term movement.
Markets are moved by their largest participants - I believe this is the single most important principle in short-term trading. Accordingly, I track the presence of large traders by determining how much volume is in the market and how that compares to average. Because volume correlates very highly with volatility, the market's relative volume helps you determine the amount of movement likely at any given time frame--and it helps you handicap the odds of trending vs. remaining slow and range bound.
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