Amgen is a drug company headquartered right in our own backyard in Thousand Oaks, Calif., just west of Los Angeles.
From Amgen's classic double-bottom base in February 1990 until it ultimately topped in the summer of 2000, the stock increased more than 50 times. This example shows its first of two huge moves from a split-adjusted $8 to almost $80 in January 1992. It then corrected more than 50% and underperformed for more than two years before embarking on another similar enormous advance.
You spot a potential big leader by first recognizing a sound and classic chart base. Then you check the key fundamentals. The quarterly earnings in late 1989 were up 300% and 700%. These 100%-plus earnings continued for several years, which is why the stock had such great performance.
I remember reading a story on the company that really caught my attention once we saw the stock's chart action and big earnings. Amgen had developed a new drug to treat cancer patients suffering from the side effects of chemotherapy. The drug had immediate results as it quickly rebuilt low white-blood cell counts. The company also spent an unusually large percentage of sales on research and development.
The weekly chart shows you the first buy at $8.70 once the stock undercut its first bottom of $7.88 and then recovers back 10% above the $7.88 low. After that we have marked other buy points on the way up until the stock formed an eight-week cup pattern in the December 1990 quarter, which set off another quick 200% increase. Note that both of these bases formed during a correction in the general market averages and the stock broke out after follow-through days in the general market.
Known facts at the time of the breakout:
• Acceleration in quarterly earnings from 0% to +300% to +700%.
• Quarterly sales acceleration from -46%, +46%, +84%, +207%.
• R&D 36%.
• After-tax margins at 12.2%, up from single digits in the last eight quarters.
• Marked increase in funds owning shares, going from 14 in September 1989 to 123 in September 1991.
This column originally ran in Investor's Business Daily as part of a 2013-14 series on America's greatest stock opportunities written by IBD's founder, the late William J. O'Neil.
