Following Friday’s post-Brexit massacre in stocks, it may be an opportune time to sift through the rubble to locate stocks that can provide solid fundamentals, good technicals and above-average dividend yields.
A big-cap name that came up on this screen was Amgen, Inc. (AMGN).
From a technical viewpoint, Amgen stock has major support at the $145, with further support at the $140 level.
AMGN stock is also getting deeply oversold on a nine-day RSI basis, with a reading below 30.
Previous instances when AMGN was this oversold marked intermediate-term lows in the price of Amgen stock. Implied volatility (IV), a normally reliable contrarian indicator, is also at the highest level since the stock made a significant bottom in mid March.
Fundamentally, AMGN is now trading at the lowest price-to-earnings ratio since 2012. With a P/E of just 15.4, it trades at a significant discount to the S&P 500 P/E multiple of 24.
Amgen stock also provides a solid dividend yield of about 2.7%, far surpassing the 10-year U.S. Treasury yield of 1.5% and also comparable to the 30-year U.S. bond yield of 2.3%. With a payout ratio of only 36%, AMGN can certainly maintain or increase its dividend over the coming years.
Over the past five years, Amgen has annually.
With the recent market turmoil created by the Brexit vote now likely putting any U.S. interest rate hikes on hold for the foreseeable future, I think low-multiple, higher-yielding quality-name stocks like AMGN should likely find some solid buying on any further weakness.
With IV now at heightened levels, option selling strategies are favored, so an out-of-the-money bull put spread makes sense.
AMGN Stock Trade Idea
Buy July $137 put and sell the July $140 put for a 50-cent net credit. These are the regular monthly July options that expire July 15.
The short $140 strike price is positioned below the $145 major support and right at the secondary support level of $140. The $140 strike also provides a 4.4% downside cushion to the $146.45 Friday closing price of AMGN stock.
The maximum gain on the trade is $50 per spread, with a maximum risk of $250 per spread. Return on risk is 20%.
I would look to close out the position on a meaningful break of the $140 in Amgen stock, while letting the position expire and keep the initial $50 net credit per spread if AMGN remains well behaved.
As of this writing, Tim Biggam did not hold a position in any of the aforementioned securities. Anyone interested in finding out more about option-based strategies or for a free trial of the can email Tim at tbiggam@deltaderivatives.com.
