I'm always on the lookout for oversold stocks with a good fundamental stories that could be ready to turnaround and bounce hard, as these type of moves can be extremely profitable. One industry in particular I like to look for these potential opportunities in is the extremely volatile biotech space. One hot piece of news or data point can sometimes turnaround a stock and send it into the stratosphere as was witnessed with Sarepta Therapeutics (SRPT) gaining 200% in a single day.
Horizon Pharma (HZNP) recently came across my radar and intrigued me after a large selloff following a dilutive financing. However, that selloff may be overdone and has poised HZNP for a bounce for the following reasons:
"With our ongoing sales force expansion and recent DUEXIS U.S. co-promotion agreement with Mallinckrodt, which together are expected to increase the number of called upon physicians from 10,000 to 50,000, and our U.S. approval of RAYOS, we are well positioned to successfully drive near-term revenue for the Company," said Timothy P. Walbert, chairman, president and chief executive officer, Horizon Pharma. "In addition to driving the uptake of DUEXIS after our recent product launch, we received FDA approval for RAYOS in July for multiple indications, including RA and polymyalgia rheumatica and we plan on launching RAYOS in the fourth quarter this year."
2. The stock price has a history of overshooting to the downside on on news such as financing in the past. Also noteworthy from its chart is its history of making sudden giant moves up faster than it sold off for sometimes hundreds of percentage in price appreciation. Perhaps HZNP is ready to make another move back up.
3. The last two insider purchases were made at prices over 50% higher than the current price which means current purchasers of HZNP stock which will amount to a large percentage profit with the stock price merely returning to the levels of insider purchase!
- On March 2, 2012, the director of the company Jeffrey W. Bird bought 680,293 shares at an average price of $3.59.
- On September 25, 2012, the director of the company Jeffrey W. Bird bought 575,356 shares at an average price of $3.49.
To quote the legendary Magellan fund manager Peter Lynch, "Insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise"
4. There was a financing by large institutional and informed investors less than 2 months ago at $3.50 per share who clearly thought the stock price was undervalued and worth investing then. HZNP once again offers a 50% return just for them to get back to break-even. While this certainly played a role in the selloff that occurred, it appears that the selloff may be overdone.
5. A catalyst that could ignite a bounce was mentioned in their Q2 conference call which is potentially positive new still pending and expected over the next several weeks: "...in DUEXIS we anticipate a decision on the marketing authorization application in the United Kingdom in Europe by the end of this year"
For these reasons I believe HZNP may be set up and positioned for a bounce.
Disclosure: I am long HZNP.