Strategically, it makes sense to buy select stocks trading near 52-week lows at this time of year. The strategy of buying beaten-down stocks just a few weeks before the end of the year often results in solid gains because stocks that many investors have losses on, are often sold down even more for tax loss purposes. Sometimes after holding a stock that has dropped in value, investors want to sell even if it's not a great time to do so. This occurs out of pure frustration, a desire to cut losses, and a desire to harvest tax losses in order to offset gains on other stocks.
The tax loss selling can exacerbate the declines in an already oversold, undervalued stock at this time of year and that can be an opportunity. I have researched a number of biotech companies that fit the profile for a strong stock surge in January. In addition, these stocks are all trading below $8 per share and could see very large percentage gains due to the low price per share. Here are a few stocks that have had a tough year, but should rebound into 2012:
Catalyst Pharmaceutical Partners, Inc. (CPRX) shares are trading for about $1.05. Catalyst has exclusive worldwide licenses to commercialize CPP-109 and CPP-115. The company is working on a clinical trial for CPP-109, "Vigabatrin" to treat cocaine addiction. Two drug addiction treatments from Reckitt Benckiser have achieved blockbuster status with combined U.S. sales of over $1 billion. Cowen, Zacks Investment Research and other top analyst firms have recently started to cover Catalyst and have given the shares a buy or outperform rating with price targets ranging from $4 to $8 for CPRX shares.
Catalyst recently announced a small secondary offering (about $3 million) at $1.15 per share and that knocked the stock down from about $1.45 to around $1. This stock is trading at about half of the 52-week high, and below the recent secondary price of $1.15. This means that some investors are probably selling this stock for tax-loss purposes now. It makes sense to take advantage and buy from these sellers because once this tax loss selling drys up, the stock could see a large percentage move higher. The gains are likely to occur in either the last week of December on into the first week of January.
Chelsea Therapeutics (CHTP) is trading around $5.10. CHTP is a biotechnology company based in North Carolina. These shares have traded in a range between $3.25 to $8.20 in the last 52 weeks. The 50-day moving average is $4.66 and the 200-day moving average is $4.48. Chelsea is pursuing an orphan drug strategy for a drug called Northera (Droxidopa) which is for the treatment of hypotension. This treatment has been approved and marketed in Japan for over 15 years, and generates about $50 million in revenue in that country. Chelsea is a low risk, high potential biotech stock. The new drug application for Northera could be approved in the first quarter of 2012.
Furthermore, CHTP has a high short interest and according to the latest data, about 5.6 million shares are short. With average trading volume of only 349,000 shares per day, it would take about 16 days worth of volume for shorts to cover. The stock is trading well below the 52 week high and is probably seeing some tax-loss selling now. However, when that tax loss selling ends in the next couple of weeks, the stock could surge and even see a short squeeze. One firm has a $16 price target for CHTP shares. The other reason this stock looks like a strong buy now is because the chart looks great and that could attract momentum investors and others.
Human Genome Sciences, Inc., (HGSI) shares are trading at $7.13. HGSI is a biopharmaceutical company based in Maryland. These shares have a 52 week range of $7 and $30.15. The 50-day moving average is $9.63 and the 200-day moving average is $19.29. Analyst estimates for revenues are seen at about $130 million in 2011, and are expected to surge to about $307 million in 2012. That type of growth is hard to find, so this stock could be a good rebound candidate after having a tough 2011. With tax loss selling likely to fade in the coming days, that should help lift the shares as well.
Alnylam Pharmaceuticals, Inc. (ALNY) is trading around $7.37. ALNY is a biotechnology company based in Massachusetts. These shares have traded in a range between $5.88 to $12.34 in the last 52 weeks. The 50-day moving average is $7.22 and the 200-day moving average is $8.47. In the product development pipeline, Alnylam has candidates for Huntington's disease, liver cancer, RSV infections, anemia and more. Alnylam has a very strong balance sheet with about $173 million in cash.
The market capitalization is currently about $288 million, but after you consider the cash on the balance sheet, the enterprise value is only around $123 million. That's too low for the pipeline this company has. With the stock trading well below the 52 week high, it has probably seen significant tax loss selling. The selling induced by tax losses has almost run its course and the stock is a strong rebound candidate in 2012. Furthermore, the stock has a high level of short interest and that will add more fuel to a potential rebound.
NPS Pharmaceuticals, Inc. (NPSP) shares are trading at $5.90. NPS is a biotechnology company that is focused on treatments for rare diseases. The 50-day moving average is $6.13 and the 200-day moving average is $7.97. Earnings estimates for NPSP are a loss of 44 cents per share in 2011, and a loss of 24 cents for 2012. The 52 week range is $4.35 to $10.75. This looks like a good stock to average into over the next two weeks, as it is likely to spike higher in January, when tax-loss selling comes to an end.
Like many biotechs, NPSP has a high short interest. Recent data shows about 7.8 million shares are short and based on average volume of about 788,000 shares traded per day, it would take about 10 days worth of volume for shorts to cover. Another huge plus is that insiders have been buying lately. In the last few weeks alone, multiple insiders bought a total of 70,000 shares.
AEterna Zentaris (AEZS) is trading around $1.65. AEterna is a biotechnology company based in Canada. This company is working on various treatments for cancer. These shares have traded in a range between $1.35 to $2.68 in the last 52 weeks. The 50-day moving average is $1.62 and the 200-day moving average is $1.92. This company has a very solid balance sheet with plenty of cash to fund pipeline development.
This stock looks like a good candidate for a rebound in January, since tax-loss selling will be over. Analysts at Oppenheimer have an outperform rating and a $5.50 price target on AEZS shares. About 4.7 million shares are short, and based on average volume of nearly 900,000 shares traded per day, it would take over 5 days worth of volume for shorts to cover.
Keryx Biopharmaceuticals, Inc. (KERX) is trading around $2.46. Keryx is a biotechnology company based in New York. These shares have traded in a 52 week range between $2.37 to $5.55. The 50-day moving average is $2.85 and the 200-day moving average is $4.03. Keryx has a number of interesting candidates in the product development pipeline.
This company has two candidates: Perifosine, for multiple myeloma and colo-rectal cancer, and Zerenex, which targets hyperphosphatemia in patients with end-stage renal disease, both of which are currently in Phase 3 trials. MLV Capital has a buy rating on KERX with an $18 price target. This stock was trading around $4 in September but dropped with the markets to about $2.50. Now is a good time to buy before a January rebound.
The data is sourced from Yahoo Finance.
Disclaimer: The information and data is believed to be accurate, but no guarantees or representations are made. Rougemont is not a registered investment advisor and does not provide specific investment advice. The information contained herein is for informational purposes.
Disclosure: I am long CPRX, CHTP.