With the market expected to continue on its southward journey this week, it might be worth keeping an eye on Human Genome Sciences (HGSI) as a potential 'rebound buy' to hang onto until after the market settles and the downward momentum is eased.
HGSI shares traded down by over three percent on Friday, although volume was relatively light when compared to the daily norm. The market as a whole was heading lower, too, so many speculative plays such as HGSI were also heading lower and will continue to be vulnerable to accentuated price drops as long as big money is rolling out of the market, and not in.
In situations where the broad market drops, it's usually the case that speculative money is the first to flow out; but on the other hand, when the bottom is found, it's those speculative plays that that are then positioned to realize the largest percentage gains during a recovery period, since they've already dropped well more than the market average.
Human Genome could be an example of that phenomena right now.
Barely a week ago HGSI was trading for over eight dollars and on numerous occasions already this year the stock has experienced some mini-runs after having touched the low seven dollar range. Friday's drop leaves the stock trading not too far away from the standing 52-week low of $6.51. Should the market continue to drop, as many predict, it's not out of the question to believe that HGSI could revisit those lows.
That said, the buyout talk is a near-constant with Human Genome - with most of the speculation revolving around Benlysta partner GlaxoSmithKline (NYSE:GSK) - so traders generally keep an itchy trigger finger with this one, meaning any protracted dip might not last too long; although the buyout rumors swirl so often that investors may be battle weary of that rumor and are more willing to ignore the noise now until something material develops.
With that in mind, averaging down might be the best way to play it.
It's been slagging sales numbers for Benlysta, HGSI's lupus-treating drug that is partnered with GSK, that has kept the share price deflated and allowed shorts to have a field day from the 52-week highs. There is hope for an increase in sales momentum during the coming quarters, however, as the numbers jumped from $18 million to $26 million during the last two quarters of 2011.
As doctors become convinced that the treatment works - many consider this still to be a "trial period" according to public statements issued by the company - then they'll be more apt to prescribe the drug. Such a scenario could lead to a quick spike in Benlysta sales, although there is still a long way to go to reach the previously-estimated levels.
By the time the lofty expectations are met, though, there's a good chance the stock will be trading at much higher levels. It's still worth playing the trades with this one, in my opinion, but the lower it dips - the better long time hold it also becomes.
Also of note last week, UBS initiated coverage of the company with a "neutral" rating. Ya gotta love that one - you have to wonder why they bothered with coverage if they felt that strongly about the company.
Disclosure: No position, but may purchase long shares within the next 72 hours.