(Note: The author of this fundamental analysis is a financial writer and portfolio manager.)
Biotech stocks may be nearing a significant break out using the SPDR Biotech ETF (XBI) as a proxy. Three stocks that are also breaking out are Agios Pharmaceuticals Inc. (AGIO), Esperion Therapeutics Inc. (ESPR) and Vertex Pharmaceuticals Inc. (VRTX), and they may be poised to rise by as much as 17% based on technical analysis.
The SPDR Biotech ETF is nearing a technical break out and should it rise above $85.25, the ETF could increase 7% to $91.50.
Esperion has broken out already after rising above technical resistance at $50.75. Now the stock appears to be working its way higher to refill a technical gap from the beginning of May when it fell from $69. That was when the company reported disappointing results from a Phase 3 trial for a drug in development. Now the chart suggests the stock may rise back to $69 to fill that gap, and should that happen it would result in a 17% gain from the current stock price of $58.86. The relative strength index is also trending higher since May and is suggesting bullish momentum is moving back into the stock.
The shares of Agios are also breaking out after rising above a multi-month downtrend which started in June. The stock's next level of technical resistance is 9% higher at $79.40, from its current price of $72.80. The relative strength index also suggests the stock is oversold after falling below 30.
Vertex is also breaking out after rising above technical resistance at $183, and the chart suggests the stock may increase 6% to $195.25 from its current price of $183.90. The relative strength index for the stock also hit near oversold levels around 30 in the middle of October, and suggests the stock is due to rebound in the coming weeks.
The three stocks may all see a meaningful rebound over the coming weeks as the broader stock market continues to heal from the steep sell-off in October. A biotech recovery would indeed suggest that a risk-on mentality is coming back to the marketplace. That may even help fuel a further rise in the stock market through year-end.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.