(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of ACAD.)
Biotech stocks have been hammered since early September. The SPDR S&P Biotech ETF (XBI) had been up 18% for 2018 at the start of September. Since then the Biotech ETF has given up nearly all of its gains and is now up less than 1% on the year. But not all biotech stocks have been poor performers during this time, and some may be poised to gain 15% or more in the final few weeks of 2018. (For more, see also: Top 5 Biotech Stocks for 2018.)
Since the beginning of September shares of Acadia Pharmaceuticals Inc. (ACAD), Tesaro Inc. (TSRO), and Biomarin Pharmaceuticals Inc. (BMRN) have all outperformed the broader 117-stock ETF and the S&P 500 index. The top 10 holdings of the XBI fund represent 15.5% of the portfolio's weighting, according to fund documents.
Acadia's stock has soared by more than 56% since the beginning of September. Now it is nearing another potential break out which could send the shares higher by another 22% from its price of $22.20. The stock reached an intraday high of $23.50 on October 18, and should the stock be able to rise above technical resistance at $24, it could be on its way to $27.20. The relative strength index (RSI) for Acadia is also suggesting that bullish momentum is returning to the stock. While only 2.2% of the XBI ETF portfolio, ACAD stock is the fund's largest holding.
Tesaro stock has risen by more than 28%, and its shares may be due to rise an additional 20% from its current price of $41.75. The stock has been trending higher since the middle of August and has formed a technical pattern known as an ascending triangle—a bullish continuation pattern. Should the stock rise above technical resistance at $45.25, the shares could increase to roughly $50. TSRO is the ETF's second-largest holding, at 1.71% of the portfolio. (For more, see also: Biotech Gearing Up for a Pullback?)
Biomarin is up by just 3% since September, but it too is nearing a technical break out, which could send the stock higher by more than 15%. The stock has also been trending higher since April and has also formed an ascending triangle technical pattern. If the shares can climb above resistance at $107.50, then it may be on its way higher towards $119.25. The RSI for the stock has also been steadily rising since April and suggests bullish momentum is moving into it. BMRN is the seventh-largest holding in the XBI ETF portfolio, at 1.7% of the weighting.
Even with the weaker broader equity market and beaten down biotech sector struggling to find its footing, these three biotechs may continue to outperform in the weeks to come.
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.