Leadership has its privileges … and its drawbacks. Right now, biotech stocks are realizing one of the drawbacks as this normally investor-loved sector is being taken behind the woodshed. The reason: Traders are closing positions to lock in profits during a seemingly risk-off moment for the markets.
The move is eerily similar to what we saw last year when biotech stocks sagged by 33% between February and April as the sector corrected itself from a technically overbought situation.
For now, biotech stocks will represent the falling knife, likely for a few weeks as the air comes out of the group. However, the pessimism generated toward the group during this pullback will eventually make several of these biotechs attractive as stocks to buy. We just want to wait for these stocks to become oversold, signaling our opportunity.
Grabbing the tiger by the tail in this sector can be difficult, but we’ll look at three biotech stocks to buy that fit our criteria as “buy the dip” candidates — and provide price ranges to buy into.
Biotech Stocks to Buy: Biogen Inc (BIIB)
Biogen Inc (NASDAQ:BIIB) — a leader in therapies for the treatment of neurological, autoimmune and hematologic disorders — has recently benefited from news of a potential Alzheimer’s treatment making its way to Phase 3 testing.
Analysts covering BIIB appear confused as both upgrades and downgrades have been initiated over the last few weeks. That said, the stock remains far from “overloved” — 68% of the 25 firms covering BIIB have it ranked a “buy,” which is only slightly higher than the 62% average for all biotech stocks.
BIIB shares have been as high as $480 this year, more than 41% higher than their year-end close. The last three days have seen a 10% decline, however, as this relative strength leader is seeing profit-taking.
But the charts suggest that there will be strong upside after the storm clears.
For our portfolios, BIIB shares are a deal with significant upside if they go below $425. The charts also suggest that significant support should swell at the $400 level as shares would then be technically oversold for the first time since November, when shares were trading at $300.
Biotech Stocks to Buy: Regeneron Pharmaceuticals Inc (REGN)
Another biotech with drugs moving through the pipeline is Regeneron Pharmaceuticals Inc (NASDAQ:REGN). REGN recently announced positive trial results for a hypercholesterolemia treatment it’s developing with Sanofi SA (ADR) (NYSE:SNY), which shot the stock from $425 to almost $490 in short order.
Shares have taken a tumble by 12% after ringing the technically oversold bell last week as the traders have moved to take profits, but the selling appears to be setting the stage for another opportunity to take positions in this relative strength leader.
From a sentiment perspective, the stock resembles BIIB shares as 68% of the analyst with an opinion rank it a “buy,” a little higher than the sector average. We’re also seeing a higher likelihood of upgrades as REGN has recently been praised by Barron’s and Mad Money’s Jim Kramer. This situation appears to be one where the bulls are getting ready to pile in.
The technical pendulum is swinging from bearish to bullish quickly as REGN shares are likely to find support from the market at $425. This is the price where shares will also start to breach technically oversold levels, warranting attention from buyers and where we would consider the stock a “buy.”
Biotech Stocks to Buy: United Therapeutics Corporation (UTHR)
A lesser-known name to most investors, United Therapeutics Corporation (NASDAQ:UTHR) develops drugs for several ailments, including cardiovascular disease and cancer. United’s recent developments are in the area of pulmonary arterial hypertension.
UTHR is benefiting from the recent approval of its drug, Unituxin, which is seen as a new revenue driver for the company’s balance sheet. News of the approval helped shares catapult to the $180, a new high.
Despite the promising pipeline, UTHR shares remain undiscovered by the analyst community, of which 65% maintain a current “hold” or “sell” rating. Last week, shares were downgraded by one firm based on valuation. Historically, valuation downgrades are met with little selling before climbing higher, especially when “the crowd” is as bearish as it is on UTHR.
So far, selling of UTHR has been controlled as the stock is a mere 4.5% from its highs. We expect that the stock will work its way lower over the next few weeks as the market appears weak. Over the short term, the $150-$160 price range presents itself as a good buy-in price on this biotech stock.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.