Long BAYER - Trading & Portfolio

28 בדצמ׳ 2021

To evaluate BAYN share in the short term, it is necessary to make a premise on the weekly chart.


The trend is bearish from 2015 until today, the stock has gone from just over 140 in the spring of 2015, to just under 40 in October 2020; today BAYN is around 47.

In the weekly chart you can see several recurrences:
1) Bullish divergences between prices and indicators (February 2016 - September 2016 and December 2018 - May 2019) with subsequent price rebound of about 30-35% from the breaking of the trendline.
2) Failure of new relative highs (post bullish divergences) both in 2017 and in the V-shaped rebound occurred post lockdown Covid-19 in 2020.

In the last weeks, prices are approaching the bearish trendline, after having marked a double relative low in the 44 area, without reaching the previous low in the 40 area.

Given these premises, the daily chart has created several interesting movements from August 2021 until today. First of all, I point out the bullish divergence of the August-September 2021 period, which was followed by a rebound in the price of BAYN from 45 to 51 (approximately + 13%), a rebound that was "perfectly" interrupted on the trendline of the weekly chart. Subsequently, the price fell again, marking new relative lows in area 44, and then building an interesting LONG entry in the last month.

In detail, I personally noticed the following patterns:
1) Tweezer Bottom Pattern created by the lower shadows of the 2 candles indicated in the circle, the second candle is also a Southern Doji (without body); this corroborates the reversal potential.
2) Cup & Handle (forced) as the second corner is very wide, and is more like a double low. However, overall the pattern indicates further reversal potential; as the price did not hit new lows below 44.
3) Currently the price is inside the resistance zone created by the previous gap. That zone was breached intraday, but not with daily candles, so in my view it is somewhat intact but less "strong".

Given these analyzes, several LONG strategies could be constructed.
In the short term (very short), a strategy could be set up with the following values:
- Entry price: 47.00 (current value)
- Stop Loss: 45.70 (approximately -2.7%) -> value taken from the last gap
- Target Price: 51.00 (approximately + 8.5%) -> value chosen for the relative maximum of November 2021
If BAYN stock will reach the value of 50.00, it could be considered to modify the stop loss by bringing it above the entry price, allowing any gains to run.

From a short/medium term perspective, a strategy could be set up with the following values:
- Entry price: 47.00 (current value)
- Stop Loss: 43.50 (approximately -7.5%) -> value below the last relative minimum of 44
- Target Price: 57.00 (approximately + 21%) -> value chosen for the relative maximum of May 2021
If BAYN stock will reach the value of 54.00 (Gap still open), it could be considered to modify the stop loss, bringing it to the 51.00 area and letting any gains run.

In a long-term and portfolio construction perspective, the holding of BAYN could be evaluated, given the following considerations.

COMPANY DESCRIPTION
Bayer operates in the pharmaceutical chemical sector in businesses related to the improvement of the quality of life. The first sector is the pharmaceutical and the second is the agricultural, through which it supplies products that improve the quality of food. Bayer consolidates 420 companies in over 90 countries with a total of 117,000 employees. The company is very active in portfolio rationalization operations. The last significant acquisition implemented in 2018 was that of Monsanto, financed with a capital increase of EUR6bn.
Geographically, Bayer achieved 35.7% of turnover in Europe, the Middle East and Africa, 29.2% in North America, 20.5% in Asia and 14.6% in Latin America.

FUNDAMENTAL ANALYSIS
Corporate business recovering in 2021 after 2020 affected by the pandemic. After a first half year with growing turnover and better profitability (EBIT returned to positive and net loss reduced to EUR 246 million from 8 billion in 1H20), the third quarter also improved in terms of sales (+ 14.3%) and profitability. Net profit of EUR 85 million against a loss of EUR 2.7 billion in the corresponding period of the previous year.
The good results prompted the management to improve again the forecast for 2021: turnover at EUR 44 billion and EPS in the range of EUR 6.5-6.7 vs respectively 43 billion and EUR 6.4-6.6 range estimated in August .
No new extraordinary costs have been allocated related to the dispute with the US Supreme Court in relation to the Roundup affair (herbicide based on glyphosate considered carcinogenic), denoting how Bayer, after the compensation plans proposed in recent years, is now more confident for a favorable sentence , expected by 2022.

In this long-term context, the position is to be considered without stop loss and any entry and exit prices will be evaluated in the future, based on how the stock will behave in the coming weeks; as BAYN stock is part of the pharmaceutical sector and is therefore a "defensive" stock.

Dr. Cunti Mattia, CFTe®, EFA


** WARNING **
The content of the analysis just carried out is the result of personal opinions and does not constitute a solicitation to buy or sell any financial instrument.
These views therefore do not constitute advice or a recommendation to invest or disinvest.
The analyzes are for informational purposes only, and do not constitute personalized advice, as the writer does not know the personal characteristics of any of the readers, especially income flows, ability to bear losses, equity consistency.