Depending on the outcome of the 2016 U.S. presidential election, biotech stocks could be the next great short play. And savvy investors seem to know which candidate has plans to implement tough regulation, likely denting the biotech industry’s revenues. It’s no secret, really …
Presumptive Democratic nominee, Hillary Clinton, openly plans to fight against price gouging and lower prescription drug prices by introducing generic alternatives into the market while pushing for increased competition.
She’s also sent letters to the Food and Drug Administration and Federal Trade Commission just a few months ago, solidifying her stance on the price gouging issue.
Currently, national polls have her in the lead in a head-to-head matchup with Republican opponent Donald Trump. Should these early signals prove valid come November, we may begin to see investors take profits and seek investment opportunity in the market elsewhere.
Given what we know today, let’s look at a few companies in the biotech space to see if capital flight has already begun.
Biotech Stocks to Watch: Ani Pharmaceuticals Inc (ANIP)
Click to Enlarge Ani Pharmaceuticals Inc (ANIP) is a company engaged in developing, manufacturing and marketing branded and generic prescription pharmaceuticals.
ANIP recently posted quarterly earnings data back on May 5, reporting 76 cents per-share earnings for the quarter, topping the consensus estimate of 64 cents by 12 cents. This equated to earnings of $20.60 million during the quarter, compared to consensus estimates that came in at $21.03 million.
Analysts at Guggenheim reiterated their “buy” rating for the stock, lifting the price target from $55 to $65 per share. Let’s dive into the charts to see if the bullish outlook is realistic or whether there’s any downside developments taking place that might derail a stock that’s gone too far, too fast this year.
In the graph above, the Profit Scanner powered by Recognia discovered a bearish engulfing pattern on the weekly price view at $52.05 per share. While the price of ANIP has dipped marginally lower since, investors should remain cautious of the signal as the overall trend following the February low still points north.
Intermediate-term support can be found near $50 per share. At this psychologically important level, there exists a point of price reversal in late April, as well as the potential to run into ANIP’s rising 50-day moving average.
Resistance above current price levels can be found at $56.06 and needs to be cleared if the upward trend is to remain intact. While possible, investors should remain alert in the event that lower lows are made in the weeks ahead.
Biotech Stocks to Watch: Ariad Pharmaceuticals, Inc. (ARIA)
Click to Enlarge Ariad Pharmaceuticals, Inc. (ARIA) is an oncology company focused on cancer medicine.
Although revenues are rising, net income losses remain stubbornly entrenched in the negative as increased selling, general and administrative expenses, along with rising research and development costs, continue to keep ARIA’s stock price in check.
In the chart above, we can see that shares of ARIA have been trading in a volatile trading range over the past year. On June 17, Profit Scanner alerted subscribers that the price of the stock had crossed below the 50-day moving average.
If this development holds and the ARIA stock price cannot recover, we’ll look for ARIA to trade down to the next area of support found at $6.46 per share. If realized, investors who are short the stock stand to gain 12.82%.
Biotech Stocks to Watch: Prothena Corporation PLC (PRTA)
Click to Enlarge Prothena Corporation PLC (PRTA) is a global biotechnology company focused on the discovery, development and commercialization of immunotherapies for the treatment of diseases that involve protein misfolding or cell adhesion.
Following an impressive run from about $20 to $80 per share throughout 2015, PRTA has given up most of those gains so far this year, sitting at just $39.20 at the time of this article. With price slicing through the 21-week and 50-day moving averages, bears continue to have the upperhand in this fight.
More recently, Profit Scanner issued four bearish alerts to subscribers beginning in early June, back when the stock closed at $48.41 per share and was on the verge of making new highs for the year.
Given the contrarian view and Profit Scanner’s ability to flag underlying weakness in the stock, investors who adhered to the signals and established a bearish position in the stock are now sitting on gains of about 19%. Longer-term support is found below at $20.57, so the potential exists to capture additional downside movement in the months ahead.
Profit Scanner powered by Recognia can help traders of all levels uncover these signals to determine the best timing to buy. Or use Profit Scanner’s technical insight to validate your own trading ideas. See how easy this powerful tool is to help you uncover hidden opportunities in the market.