Monday, March 24, 2014

Enzon Pharmaceuticals Just Went from Good to Great (ENZN)

With just a quick glance at the company's recent news (or lack thereof), Enzon Pharmaceuticals Inc. (NASDAQ:ENZN) doesn't look like anything all that special... or even trade-worthy. It only takes a brief look at the chart of ENZN, however, to conclude this stock - lack of new or not - has just become something trade-worthy, because the rest of the market has clearly started to fall back in love with it; there's no telling at what price the love affair could end.

For those not familiar, ENZN is a biopharma stock. Specifically, Enzon Pharmaceuticals drives revenue by collecting royalties on sales of drugs that were/are developed on its PEGylation platform. There are seven such drugs right now, though only three of the seven make up the lion's share of the company's total revenue. Still, compared to other small cap biotech stocks of its ilk and size, three revenue-bearing products is enviable, and revenue is relatively reliable. Perhaps more important, the company has been profitable for the past three quarters, even if sales have tapered off a bit. For perspective, Enzon - a $55 million outfit - drove $34.5 million in sales for the past four quarters, and turned $18.15 million of it into a profit. Not bad.

That's not the reason a newcomer would want to step into ENZN today, however. No, the reason a trader might be interested in taking on a position in Enzon Pharmaceuticals Inc. today is primarily the fact that this chart, after working on a rebound for months, is finally above key 200-day moving average line, clinching a buy signal. It's the most credible evidence we've seen yet that the stock has shrugged of months of weakness and is back in a bullish mode.

The daily chart of Enzon below tells the tale. After a couple of tries - and thanks to being able to use the 20-day moving average line (blue) as a springboard, ENZN punched through the 200-day moving average line (green) on Friday; there's nothing else left to hold it down. Better still, it made the move on very high volume, suggesting there's a lot of participation in the rally.

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To really put the reversal in perspective though, only a weekly chart of Enzon will do. It's here we can see that the floor at $0.89 was drawn (mentally) long ago. The stock just had to brush it for a third time a couple of months ago - and even dip a bit under it to really slough off the weak holders - before being able to begin the bigger recovery process. Since then, we've seen a ton of volume behind the recovery rally... enough to say that ENZN has the interest it needs to keep chugging.

What's most interesting about the beginning of a major rebound is that there hasn't been any news from, or even really about, the company in months. There's something going on though; nothing in the market happens on accident. Most likely, someone (or enough someones) know something or are certain enough about something that the news driving the current rally will materialize sooner or later. For speculators of small cap stocks, however, the time to act is now, because ENZN is rolling now.

Besides, the revenue and earnings numbers make sense. You could almost make the case that Enzon Pharmaceuticals, with a trailing P/E of 3.3 and a price/sales ratio of 1.4, is a value play.

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