by James Brumley | August 4, 2014 11:35 am
If last week’s marketwide weakness was a prelude to the usual poor performance from stocks in August, then investors may want to think very strategically about the next few weeks.
Specifically, traders may want to limit their list of potential stocks to buy to those areas that can — and do — move independently of the rest of the market. And which stocks might those be? Biotech stocks — and in particular, biotech stocks with a specific reason to rally in the foreseeable future.
News, drug breakthroughs, and technical catalysts are just a handful of the reasons why these names could move higher even if the broad market is pointed lower this month. If an investor needs a little more direction, however, there are five biotech stocks that look especially promising here and now. In no particular order, here’s a closer look at all of them:
If nothing else, Biocryst Pharmaceutical (BCRX) is a compelling biotech stock trade right now because of its short-squeeze potential. Per numbers reported just a few days ago, the short interest on BCRX had cranked up to an incredible 39.9% of the float. That’s a pretty risky bet — perhaps even flat out bad one — against a biotech stock that has zig-zagged its way to a 700% gain over the past thirteen months, not to mention looks like it’s gunning for another new high.
Oddly, high short interest isn’t the only reason a trader would want to add BCRX stock to a short list of biotech stocks to buy at this point, however. There’s also plenty of old-fashioned reason to step into a position here. See, while Biocryst Pharmaceutical isn’t working on an earth-shattering cure for cancer, its antiviral technology shows great promise as a treatment for angiodema and influenza. The company has even set its sights on Ebola.
While there are no specific catalysts in the hopper, BCRX stock has proven itself as one of the market’s favorites. That’s not a train you want to step in front of.
Judging from the lack of movement we’ve seen from Alexion Pharmaceuticals (ALXN) shares since June and the lackluster response to the July 24th earnings announcement, ALXN stock largely looks like dead money at this time. As the saying goes, though, expect it when you least expect it — ALXN stock is in a perfect position to rekindle its long-term uptrend by pushing off of a long-term support line.
Alexion Pharmaceuticals is the maker of Soliris … a drug that treats a couple of rare conditions. And, business has been more than good. Alexion has grown revenues and earnings every quarter (sequentially as well as on a year-over-year basis) since the beginning of 2010, beating earnings estimates every quarter since 2011. The recent lull from Alexion is a window of opportunity, and ALXN stock could prove to be one of the top biotech stocks to buy in August.
Investors who don’t like drama may want to steer clear of Valeant Pharmaceuticals (VRX). It has teamed up with hedge fund manager Bill Ackman, of all people, to facilitate the acquisition of Allergan (AGN), and things have gotten ugly. Things have become so ugly, in fact, Allergan has taken legal action against both Ackman and Valeant. Perhaps even worse, VRX stock is back near multi-month lows after Thursday’s near-7% plunge, spurred by a disappointing forecast for the remainder of 2014 and all of 2015.
Given all of that, VRX stock looks like it hardly belongs on a list of biotech stocks to buy. What gives? Respectfully to Valeant Pharmaceuticals, it’s relatively clear the company is sandbagging its outlook in order maintain what’s a string of at least 14 earnings beats. The stock’s pullback since its February peak and the recent move under the 200-day moving average line (green) all sets up an entry opportunity.
With a mere market cap of $603 million, it’s not like Anika Therapeutics (ANIK) turns a lot of heads within the world of biotech stocks. However, it’s still one of the few great biotech stocks to buy, for value-based reasons.
Shares of ANIK plunged 17% over the course of Thursday and Friday after reporting Q2’s numbers after the market closed on Wednesday. Clearly, the market didn’t like what it heard. Operating income grew 61%, from $9.4 million a year earlier to $15.2 million. Per share of ANIK stock, income grew from 40 cents to 60 cents per share, topping estimates of 57 cents. Revenue improved from $20.8 million in the second quarter of 2013 to $26.3 million this time around.
So why in the world did traders protest the results with a steep selloff? Great question. They were outstanding by all standards, and it’s not like there’s a valuation issue; ANIK stock is priced at a palatable trailing P/E of 19.0 and a forward-looking one of 23.2 (which woefully underestimates the growth Anika Therapeutics has proven it’s capable of producing). The potential for a rapid rebound makes this one of the top biotech stocks to buy here at the onset of August.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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