Until a month or so ago biotechnology was one of those sectors that everyone could win in. New drug releases, robust pipelines, M&A activity and analyst upgrades meant that a monkey could throw a dart at a list of biotech companies and make money.
Click to Enlarge Now, with valuations getting questioned and market volatility on the rise, the monkey’s aim, or lack thereof, is far from enough to continue profiting from the sector.
Since June, volatility in the biotechnology sector has increased by more than 250% as stocks within the group have been whipped higher and lower at a rate of almost double the S&P 500.
A year ago, volatility was on the decline among biotech stocks while returns were on the rise. Now, investors and traders are being forced to be more cautious among the group to pinpoint the opportunities.
For our money, the opportunities within the biotechnology sector lie within the lower-volatility names that are remaining technically strong. Fat chance finding anything within the biotechs matching that criteria, right?
Well, our Behavioral Valuation models have uncovered a number of stocks matching that criteria. Here’s a look at our low-volatility biotech bulls:
Low-Volatility Biotech Bulls: Acorda Therapeutics (ACOR)
A biopharmaceutical company, Acorda (ACOR) identifies, develops and commercializes therapies for neurological disorders in the United States. The company’s earnings results have hit analyst estimates eight of the last 12 reporting periods while growing revenues by an average of 17%.
ACOR shares are currently trading with less volatility that more than half of the companies within the biotechnology sector while outperforming the group significantly. Over the last three months, ACOR has returned 2% while the SPDR S&P Biotech ETF (XBI) has lost more than 3%.
The relative strength of ACOR is attracting analyst activities, including a new “buy” rating on coverage initiated by Aegis. Current “buy” recommendations only account for 38% of analyst ratings.
Our Behavioral Valuation model suggests that ACOR shares may make a run to the $40 level before the end of the year, representing a 24% increase from current prices, while maintaining a lower volatility level that the rest of its peers.
Low-Volatility Biotech Bulls: Myriad Genetics (MYGN)
Myriad Genetics (MYGN) shares are up more than 24% over the last three months, even after lowering forward guidance in August.
That’s right — the forward guidance provided by the company was trumped by a series of upgrades, which have helped shares rally to the $40 mark.
Shares of MYGN are below the average volatility for all stocks within the biotech sector, but that volatility is paying off for investors in this case, providing higher prices instead of losses like the average XBI component company.
Despite an upgrade from Wells Fargo in August, less than half of the analysts monitoring the stock have it ranked a “buy.”
The recent relative strength and fact that the “bad news” was already revealed by the company leaves us expecting more upgrades on this low-volatility biotech performer. Watch for MYGN to target a move to $50 before the end of the year.
Low-Volatility Biotech Bulls: Sarepta Therapeutics (SRPT)
Sarepta (SRPT) is a biopharmaceutical company that discovers and develops therapeutics for the treatment of rare, infectious, and other diseases. SRPT shares are up more than 160% year-to-date while trading with less volatility that more than half of its peer companies within the biotechnology sector.
The stellar low-volatility performance has failed to attract investors so far as only 43% of the analysts covering the stock have it ranked a “buy.” Also, short interest on SRPT represents more than nine times its average daily volume.
We love the combination of low volatility and pessimistic sentiment, as it suggests SRPT is ready to finish the year on a strong note. Our Behavioral Valuation models suggest a year-end price target near $50, a move of more than 30%.
As of this writing, Johnson Research Group did not hold a position in any of the aforementioned securities.
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