Genworth Financial Inc (NYSE:GNW) gained over 5% yesterday on the back of the rating upgrade by the analysts at Raymond James. The upgrade to “strong buy” from the earlier “outperform” came with a price target of $12, an upside of about 55%. Obviously the analysts are very optimistic about the stock, which is based on the prospect that GNW will benefit a lot from Biogen Idec’s experimental Alzheimer’s drug, which is expected to cut claims costs.
The biggest hit for Genworth Financial Inc (NYSE:GNW) came in the form of charge of reserves in its long term care insurance division. In the third quarter last year, the company had taken a charge of $345 million and followed that in the fourth quarter with another $478 million, a total of $823 million. The first phase resulted in a drop of the stock from $18 to $13 and the next phase pushed the stock further down to $7 from $14 in just 3 sessions. 2 sessions out of those 3 saw the volume exploding and that raises the question if that was the capitulation period. If it really was the capitulation volume, then most of the selling pressure can be expected as already exhausted. In that case, the price correction can be over and only a time correction going on.
This bullish speculation gets a boost from the long term chart of the stock, which shows that the trendline connecting the 2009 and 2012 bottoms, when extended, comes around $7 levels. On the other hand, the bears would take pleasure from the price pattern in the last few months, which show every sideways phase to be nothing more than a consolidation only to break on the downside eventually. So the investors may wait and watch if the sideways move continues and then an upside break materializes before getting in.