Should You Take a Chance With Novartis?

With shares of Novartis (NYSE:NVS) trading around $80, is NVS an OUTPERFORM, WAIT AND SEE, or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework.

T = Trends for a Stock’s Movement

Novartis engages in the research, development, manufacture, and marketing of a range of healthcare products worldwide. Its portfolio features medicines, eye care, cost-saving generic pharmaceuticals, preventive vaccines and diagnostic tools, over-the-counter drugs, and animal health products. The company operates in five business segments: Pharmaceuticals, Alcon, Sandoz, Vaccines and Diagnostics, and Consumer Health. Its core products and services are prescription medicines; surgical, ophthalmic pharmaceutical, and vision care products; generic pharmaceuticals, human vaccines, and blood-testing diagnostics; as well as over-the-counter medicines and animal health. In a growing healthcare field, Novartis provides key products and services.

An Israeli news source claims that Novartis is in advanced talks to buy Israeli stem-cell developer Gamida-Cell Ltd. for a rumored $600 million. The payments will be broken up into one downpayment (comprising millions of dollars) and then several hundred million dollars more for product milestones in Gamid-Cell’s research and development. Elbit Medical Technologies, another Israeli company that currently holds a 30.8 percent stake in Gamida, says that the offer includes “significant immediate payment and additional future payments totaling hundreds of millions of dollars,” according to Reuters.

Elbit Technologies declined to comment on the Globes English report about whether Gamida’s buyer is, in fact, Swiss drugmaker Novartis. The offer was received on March 7, according to a statement to the Tel Aviv Stock Exchange by another Gamida shareholder, Clal Biotechnology Industries, which owns about 22 percent of Gamida. A press release from Elbit said Tuesday that no definitive agreement has been signed and that “there is no certainty that the negotiation of such non-binding proposal will lead to the conclusion of a definitive agreement or that a transaction will be completed.”

T = Technicals on the Stock Chart Are Strong

Novartis stock has been on a bullish run over the past several months. However, the stock is currently pulling back and may need time to stabilize. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Novartis is trading above its rising key averages, which signals neutral to bullish price action in the near-term.


Source: Thinkorswim

Taking a look at the implied volatility (red) and implied volatility skew levels of Novartis options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Novartis options




What does this mean? This means that investors or traders are buying a minimal amount of call and put options contracts as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

April Options



May Options



As of Wednesday, there is average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a minimal amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Novartis’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Novartis look like and more importantly, how did the markets like these numbers?

2013 Q4

2013 Q3

2013 Q2

2013 Q1

Earnings Growth (Y-O-Y)





Revenue Growth (Y-O-Y)





Earnings Reaction





Novartis has seen rising earnings and revenue figures over the last four quarters. From these numbers, the markets have been pleased with Novartis’s recent earnings announcements.

P = Weak Relative Performance Versus Peers and Sector

How has Novartis stock done relative to its peers – Pfizer (NYSE:PFE), Merck (NYSE:MRK), and GlaxoSmithKline (NYSE:GSK) — and sector?






Year-to-Date Return






Novartis has been a poor relative performer, year-to-date.


Novartis is a healthcare company that provides a number of healthcare products and services to consumers and companies worldwide. An Israeli news source claims that Novartis is in advanced talks to buy Israeli stem-cell developer Gamida-Cell Ltd. for a rumored $600 million. The stock has been on a strong run but is now pulling back. Over the last four quarters, earnings and revenues have been rising, which has left investors pleased. Relative to its peers and sector, Novartis has been a poor year-to-date performer. Look for Novartis to OUTPERFORM.

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