2 Speculative $2 Biotech Stocks Insiders Are Buying

Includes: NVAX, PACB
by: Bret Jensen

The market did a bit better than expected in the aftermath of the Cyprus depositor tax announcement. Fund managers used the sell-off early in the day to "buy the dip" and help cut the losses in equities significantly by the end of day Monday. Seems the "Risk On" sentiment is quite strong for the moment. In that spirit, here are two biotech stocks for consideration by speculative investors. My own philosophy on biotech equities is a "shotgun" approach in which I buy small positions in a myriad of promising companies realizing most of my investments will come to naught but the strategy will be profitable overall as I should hit enough five to ten baggers over time to be solidly in the black.

Novavax (NASDAQ:NVAX) is a clinical-stage biopharmaceutical company that focuses on developing recombinant vaccines for infectious diseases using its virus-like particles (VLP) and recombinant nanoparticle vaccine technology.

I wrote about this stock back almost exactly one year ago when the shares were priced at $1.30 a share. I have added to the position during sell-offs and took profits on rallies and my original position is about the same as it was then. The shares now sell for over $2.10 a share, a better than 60% return.

4 reasons NVAX is still a good speculative play at just over $2 a share:

  1. The company just reported positive preclinical results for a vaccine for respiratory syncytial virus (RSV), which causes respiratory tract infection.
  2. When I profiled this company last March insiders were buying. This March an insider purchased over $200K in new shares.
  3. Revenues are expected to grow at better than a 25% CAGR over the next two fiscal years. The company continues to get closer to being cash flow positive and has over $40mm in net cash on the books. This is over two years of funding at current cash flow levels.
  4. The five analysts that cover the stock have a median price target of $4 a share on NVAX. Price targets range from $3 a share to $8.50 a share.

Pacific Biosciences of California (NASDAQ:PACB) is a development stage company, develops, manufactures, and markets an integrated platform for genetic analysis.

4 reasons PACB is a reasonable and potential lucrative bet at just over $2 a share:

  1. Insiders have been heavy buyers of the shares since August. A slew of insiders have bought over 1mm shares over that time frame.
  2. Consensus earnings estimates for both FY2013 and FY2014 have improved substantially over the last three months although the company is projected to continue to lose money over next two fiscal years, albeit at a decelerating rate.
  3. The company has approximately $95mm in net cash on the balance sheet. This is around three quarters of the company's market capitalization.
  4. Subtracting cash, the company is selling at about 1x 2014's projected sales. Its competitors include Life Technologies (NASDAQ:LIFE) which has been the subject of numerous buyout rumors. Given Pacific's small market capitalization and niche I would not be surprised if PACB eventually gets acquired. This was the subject of another SA article last month by another author.

Disclosure: I am long NVAX. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.