Genzyme On The Move (GENZ)

Shares of Genzyme (NASDAQ: GENZ) have been volatile the last few days, after the company announced the FDA had notified them that it intends to take enforcement action to ensure that products manufactured at their plant are made in compliance with good manufacturing practice regulations. As a result of this announcement and a subsequent downgrade of the stock by J.P. Morgan (NYSE: JPM), GENZ tumbled from the $59 level to near $51 at yesterday's close. J.P. Morgan wrote in a research note that "In our view, this is a materially negative development, and we find it highly unlikely that a company with a multi-year history of manufacturing non-compliance can quickly resolve the issues at hand."

Today, however, an analyst from Leerink Swann came out and upgraded the stock from Market Perform to Outperform. As a result, the sell off in GENZ has reversed and the shares are surging on high volume today. During the current trading session, GENZ has climbed 3.19% to $52.76. Volume in the name has been 6.18 million compared to a daily average of 3.19 million. On the 5 day chart, the stock is still down over 11%. Today's action suggests that traders may be realizing that the problems at the company are not so serious that they warranted the large scale sell off and are now willing to bid the stock back up.

Another factor that is playing into this story is the idea that Carl Icahn, who is a major Genzyme shareholder, may have a better chance of winning his fight for 4 Board seats, in light of the manufacturing problems. "It’s time for a shakeup,” said Genzyme investor Michael Obuchowski, chief investment officer for First Empire Asset Management, in an interview with Bloomberg. “With these developments today, I will be supporting Icahn."

In an email to Bloomberg, Sanford C. Bernstein & Co. analyst Geoffrey Porges wrote, "hard to see incumbent management surviving this blow." This could represent an inflection point in Genzyme stock, as the shares have severely underperformed the S&P 500 this year. A high risk/reward trade would be to establish a position in GENZ hoping to catch a bottom. The long term trend in Genzyme has been up, as the shares have climbed nearly 105% in the last 10 years, but near term stumbles are causing the stock to trade at a discount to historical prices. This may represent an opportunity for both investors looking to allocate capital with a multi-year horizon, as well as traders looking for a quick bounce.