Russell Index Additions To Create Upside While Shares Are Acquired In Open Market

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 |  Includes: AGEN, ANIK, BDSI, FB, IMUC, MACK, OMER, THLD, YELP
by: Brian Nichols

Last week I wrote an article entitled "5 Biotech Stocks That Could Be Included In The Russell 2000" which looked at stocks that had traded higher over the last year and were now eligible to be included in the index. Each stock that I mentioned were companies that I liked going forward, and had several key developments over the last six months, therefore leading to large gains. On Friday, Russell released its preliminary additions and deletions for the Russell Global, 3000, and Microcap indexes.

Those that were added will be purchased in the open market over the next two weeks which should provide some stability, or upside, to the following stocks. The reason being more than $70 billion indexed to the Russell 1000, $17 billion to the Russell 2000, and $85 billion track the Russell 2000 according to the San Francisco Chronicle (by the way, a very informative link). With that being said, let's first look at the five companies in last week's article and then some others that are worth watching.

Anika Therapeutics (NASDAQ:ANIK) was added to the preliminary list of both the Russell 3000 and Global indexes. This was by most expected, as the stock gained nearly 11% last week, bringing its YTD gain to 47%. This is a stock that I like as a long-term investor. Like I said in the previous article, it doesn't have a product that is going to return hundreds of millions in revenue, but it has been a consistent stock over the last year, and its fundamentals have steadily improved each of the last three years. The company already had insider ownership of 18.86% and institutional ownership of 35%, so the company was already well positioned with investors.

Agenus (NASDAQ:AGEN) posted gains of 16% last week on no news, with the exception of my article discussing its possibility to be included in the Russell index. The company was on the preliminary list for the Global, 3000, and Microcap indexes, and should see significant buying pressure. It also has fewer institutional and insider investors compared to ANIK, 20.10% and 10.79%, respectively.

Omeros Corporation (NASDAQ:OMER) posted a gain of 16% last week as investors prepared for the Russell announcement. The stock was added to both the Global and 3000 indexes. Much like the others on this list, it had very little in news to justify its large move higher, but with 16% institutional and 11.88% insider ownership, it could continue to trade higher as the Russell indexes accumulate shares.

Threshold Pharmaceuticals (NASDAQ:THLD) traded lower by 4% last week, but as the market's leading performer in 2012, its performance has remained flat over the last few months, as it appears maxed in terms of performance. The company did announce highlights of TH-302 presentations at ASCO, but nothing unexpected or bearish to report. THLD has the highest percentage of ownership with 50% institutional and 24.66% insiders. However, the stock will now be owned by the Russell 3000 and Global indexes to compliment strong ownership. Perhaps this explains why the stock has been able to hold its gains with minimal volatility.

ImmunoCellular Therapeutics (NYSEMKT:IMUC) was not expected to be added to any of the Russell indexes, seeing as how the company just uplisted to the NYSE on May 30. However, it was added to the Global, 3000, and Microcap indexes, which should be good for this company as it has no institutional ownership and very little insider ownership due to it being an OTC stock prior to last week. There was most likely a lack of funds from buying shares in anticipation since the list addition was unexpected, which almost certainly was what helped drive other stocks higher. Therefore, as the stock is accumulated over the next two weeks in the open market, it could become a nice performer.

As noted, the stocks above are the ones that I mentioned in my previous article. However, there were others added to one or more indexes that I found to be interesting. BioDelivery Sciences (NASDAQ:BDSI) was added to the Russell 3000, which I thought was interesting considering that it's just a $100 million company. Also, Merrimack Pharmaceuticals (NASDAQ:MACK) is another company that traded higher last week, 18%, with high expectations and virtually no institutional ownership, and that was also added to the Russell 3000. Yet, aside from biotechnology, there is one more industry with two companies added that I will be watching closely: the internet social media- based companies.

In the preliminary list, both Facebook (NASDAQ:FB) and Yelp (NYSE:YELP) were added to the Russell indexes. Obviously, the reason they were just added is because both filed for IPOs in the last year. Yelp performed exceptionally well last week, with a striking 25% gain. The stock has been volatile, but for the most part has performed well when you consider the stock performance of other companies in the social media space. Most assume there will be a large number of YELP shares purchased over the next couple weeks; it will be interesting to see if it continues to perform with this level of success.

Facebook is perhaps the most highly criticized company to hit the market in the last decade, and brings back old memories of overvalued, high profile, internet companies of the dot-com era. In an earlier article, this was highly debated. I suggested that Facebook would fall to $22.50 before reversing to post gains of 50%, and then fall further. This call was based on a previous trend in all internet- based companies that have filed for IPOs over the last two years. However, one thing I did not consider was its possibility of being added to this very large index. I think FB is now a stock to watch. It will be interesting to see if the stock can stabilize following buying pressure over the next two weeks, because if investors believe a bottom has been reached, then watch out: this stock could rise very quickly.

To conclude, I will say that it is a big deal to be a part of any high profile index such as Russell's. To be included can open many doors, and investors who follow the index will be compelled to buy shares of stocks listed. Obviously, being part of more than one index is even better for companies as it means more buyers. Over the next two weeks, as stocks are accumulated, each of these stocks is worth watching. Some such as ANIK and AGEN were anticipated and may not trade much higher. Others, such as IMUC, were more unexpected. Thus, the accumulation of shares may provide short-term gains.

Finally, for stocks such as FB, it could provide enough buying to either slow or stop the bleeding and allow for a bottom in a falling stock. Bottom line, keep your eyes open and familiarize yourself with all of the additions to the Russell indexes, because you may find upside in a very uncertain market.

Disclosure: I am long IMUC.