Last week, I published the first piece of this weekly series and explained how all active retail investors have certain stocks that they watch closer than others. Over a period of time we begin to learn certain tendencies, patterns, and can identify signs that a stock is often ready to rise. I wouldn't go as far to call it technicals, but rather a hint of market psychology. With that being said, I am looking at five more stocks that I think looked poised to trade higher in the week ahead, assuming a decent market.
Repros Therapeutics (RPRX)
The first stock I am looking at is Repros Therapeutics and I believe it could see short-term gains. To begin, I will say that a trend in the market is present… until it is no longer present. This means that investors can often play certain trends in the market, and they will last, until one day everyone prepares for the same event and the trend no longer occurs. A good example is with Facebook (FB), back during its lockup expirations, as the stock would always trade down on the day of its expirations. Then, on the day of its largest expiration (over 700 million shares), a day that many on Wall Street feared, the stock all of a sudden traded higher, trading against the trend that everyone expected.
In the past I have identified such trends, such as with Groupon (GRPN) and with other IPOs. With this trend, internet-based companies would lose value following successful IPOs. These stocks would then reverse with large gains following its post-IPO loss, as explained in the link above.
So, what does a trend have to do with Repros Therapeutics? The answer is simple: Since Sarepta Therapeutics' (SRPT) massive one-day $15-$45 pop, we have seen multi-day rallies following almost all big jumps in biotechnology. Recently these pops include stocks such as ACADIA Pharmaceuticals (ACAD), Celldex Therapeutics (CLDX), Anika Therapeutics (ANIK), and also Titan Pharmaceuticals (TTNP.OB), among many others. Therefore, with RPRX posting a 76% gain on Thursday it is very possible that investors are preparing for a continuation of this trend (based on the stock closing near session highs on Thursday). Furthermore, the stock is still trading with flat performance in 2013 and with a market cap of just $300 million. As a result, I believe it is a prime candidate to continue this trend, a trend that has been quite consistent in recent months.
Looking ahead to next week, I think Repros has the greatest chance to trade higher, although I am not suggesting that it will trade higher long-term, rather short-term. I think it will be interesting to watch this stock over the next few months, as there have been significant questions raised about the inner-workings of the company and its CEO, Joe Podolski, and I am curious to see if the company has earned the trust of investors. With that being said, data for Androxal did look great, but I am concerned of the potential data fraud that pushed its shares lower earlier this year and the questions that are still left unanswered. I will continue to research and follow the company closely, but until then, I think the stock looks very good to see further short-term gains following the excitement of strong data.
Biogen Idec (BIIB)
The second company includes a stock that I once owned, but then sold in December of 2011, thinking it was overextended, Biogen Idec. The stock broke out to new highs on Thursday with gains of 5.44%, doubling from my "sell" price, and now trading with a one-year return of 60%. The large gains came after the FDA approved its newest treatment, Tecfidera, for adults with relapsing forms of multiple sclerosis. Earlier in the week, the EU's Committee for Medicinal Products for Human Use issued a positive opinion for the drug, meaning its approval in Europe is imminent. This is a product that some analysts believe could achieve sales of $3-$5 billion worldwide. In other words, it could almost double the company's revenue. As a result, with the company having solid growth, a new blockbuster approval, and an incredible pipeline, I not only think it is undervalued and will continue to trade higher next week, but also a great long-term investment. It's safe to say my assessment was wrong back in 2011!
Seagate Technology (STX)
After an incredible start to the week, shares of Seagate Technology traded lower on Thursday as the market traded higher. To many who follow the stock, this might be a bad sign that its one-month 14% gain has reached resistance, or is preparing for a pullback. However, I am going to use recent history as an indication of trend, as Seagate has seen four pullbacks since August 2011, and on each occurrence it always trends higher than before the previous pullback.
On February 22, the stock bottomed on another pullback and has been trending higher ever since. The stock is now just $1.50 from its all-time highs, and I think history will repeat itself and the stock will test these levels, sooner rather than later. In terms of value, channel checks are indicating that the PC/HDD market is showing some stability from last quarter. Not to mention, the company is also making an increasing presence in the hybrid drive space, and continues to trade at just 4.75 times earnings despite being one of the most shareholder friendly companies in the market. As a result, not only would I buy for the short-term, but also for the long-term.
Amarin Pharmaceuticals (AMRN)
Last week I called Arena Pharmaceuticals (ARNA) to rise and it had a great start to the week, as the trend continued, but then a horrible end as investors took profits. I think Amarin Pharmaceuticals could see a similar reaction as, in my opinion, the stock has become way too cheap compared to the potential of its product, Vascepa. With that being said, I know the problems as the company has to compete with Lovaza, has a smaller budget, is not partnering with Large Pharma, and must try to separate itself from other OTC fish oil products. However, with the number of Americans alone that have high triglycerides, I think Amarin is worth much more than $1.1 billion.
The drug, as currently approved, has market potential around $1 billion, judging by the success of Lovaza. Due to the success of its trial ANCHOR and the market potential of elevated triglyceride levels, which is eight times larger, I am not sure how Amarin is not a buy right now for the long term, in addition to short term. Assuming its indication is expanded, as I believe it will, I think the market is large enough for a bare minimum $1 billion in sales. Therefore, with the stock being very oversold, I wouldn't be surprised to see a pop off its current bottom range next week. In addition, if $1 billion in sales is achieved (minimum) then the typical 3-4 times sales should also be expected, therefore presenting great upside.
3D Systems Corporation (DDD)
During 3D Systems' 16-month rally investors were continuously trying to call the top of its trend. Since January 24 the stock has lost 30% of its value, but on Thursday it popped 5.29%. In my opinion, after a long downtrend, and the 3D printing space continuing to show great growth, I think 3D Systems is a great watch for next week. With a price/sales of 8.0, I still think the stock is expensive, but not nearly as expensive as competitor Stratasys (SSYS) and its 13.14 times sales valuation. This is a company that posted operating income over $85 million during the last 12 months and has a growth rate of nearly 50% for the last three years. At $32.24 the stock is very attractive compared to its peers, in terms of valuation. With solid growth expected to continue, and after a fairly significant correction, I'd watch the stock closely following its strong close to last week, as momentum can often carry.
On a side note, I would also watch The ExOne Company (XONE), a smaller innovating company in the space that rose almost 10% on Thursday after earnings. It is the smallest of the three and is trading with the greatest level of growth, also consistently valued at 8.6 times next year's projected sales. In short, the market is still strong for 3D printing, and I'd watch both DDD and XONE for potential breakouts higher.
Just because a stock looks as though it could rally to trade higher, doesn't mean that it will actually occur. With the markets in Europe being so volatile and earnings fast approaching, it is hard to know what next week may bring. Accordingly, invest with caution, and while you may explore the possibility of short-term gains, try to become a better-rounded long-term investor that uses price to capitalize on value.