CEPH came onto our radar when we began compiling the new low data back in July when the stock was trading around $57. This was 8% above the 52 week low of $52.55. At the low, CEPH was trading at less than 15 times earnings. Although appearing to be risky, selected stocks at or near their low offer investors the opportunity to investigate quality companies for potential price increases. Our concept is laid out in the "Buy Low, Sell High" article.
CEPH has a market cap of $4.6 billion dollar. The relatively small size compared to its rivals doesn't discourage us. We only care about the market cap as a means for liquidity when buying and selling the stock. CEPH earned $3.62 per share over the last 12 months and thus has a price to earnings ratio (P/E) of 17 and a forward P/E of 10, an extraordinarily low multiple. Low P/E multiples imply that investors are paying less for every dollar of earnings (more on our view of P/E). CEPH has a book value of $28.71 per share. At $62, price-to-book is north of 2. A positive operating cash flow of $232.48M is a plus but a negative free cash flow is one of my concern ($-12.71M).
Fundamentals aside, the stock may have discounted all the negative news based on the chart pattern. In 2009, Cephalon dropped 19% as opposed to the Dow Industrials which rose 19%. Unlike the Dow which hit the yearly low in March, Cephalon bottomed in July and formed what appears to be a base. This pattern is prominent because it shows that the stock failed to move either up or down and traded in range between $60 and $53. Any break above $60 or below $53 will reveal its potential direction of the stock. Sure enough, the stock broke above $60 in late December and will look for that to be a support for the stock. The momentum indication also turned bullish as the 50-day moving average crossed the upward sloping 150-day moving average as indicated in the chart below.
| Date | Price | 3 Mo After | % Change |
| May-95 | 9.81 | 24.25 | 147% |
| Feb-98 | 12.00 | 10.63 | -11% |
| Sep-98 | 7.31 | 9.00 | 23% |
| Mar-99 | 8.75 | 17.38 | 99% |
| May-03 | 45.16 | 44.35 | -2% |
| Sep-05 | 46.42 | 64.74 | 39% |
| Aug-08 | 76.62 | 73.48 | -4% |
The average percentage gain if you sell three months after the buy indication is 42%. Excluding the 1995 data, it is 24%. We are waiting for the indicator to turn for a possible buy signal.
A buy strategy would be to purchase this stock as close as possible to $60 or the 50 day moving average which is dynamic and constantly changing. Use the Coppock indicator as another gauge to buy and watch your gains or losses closely. - Art