Look for SMID Trades and Value in Mixed Markets
- Healthcare is stilll a Favorite Sector given Tech Volatility and High Valuations .
- Bull market for Biotech and SMID caps is intact, XBI up 1.44% yesterday..
- Looking for a turnaround in MEDtech with Large caps. e.g MDT
Recently we reviewed the Healthcare Sector which is really in focus now because of all the volatility caused by the “AI effect” in technology stocks. In summary the various ETFs and Funds in the Healthcare sector show disparate returns with biopharmaceuticals leading and US Medical devices lagging. So with the market looking favorably to biotechnology as being an innovation trade and large cap drug companies being potential partners we should focus on SMID biotechs ,but with the major assumption being tt we are headed into an up- cycle in small caps as tracked by the Russell 2000 (IWM) and should be in same upward direction as the the XBI.
Now from experience and memory the cycle of biotech stocks during a bull market should be: 1-Upward from Q4 through Q1 then 2.-A brief correction beginning mid- FEB. until 3-buoyed by ASCO results and Q2 earnings reports spiked by M&A and Licensing deals in the first half of the year. Presently we are in a tight trading range of about $118-132 , the RSI is 49.66.on the XBI closing up today at $124.63. A similar trend is expected for the IWM with the current 3 mo trading Range was $245-270 and the RSI is a tad above neutral at 52.58.
So we’ll review from our trading list some long trades for now and see what news brings to the sector this week:
Our first pick should be familiar to many of you, Quidel/Ortho Corp (QDEL), P $23.13, Mkt Cap $1.75B is the 2021 merger of a small growth diagnostic company with a spinout from JNJ focused on blood transfusion supplies and diagnostic reagents. It would take a lot of work to figure out what happened but one issue wasting as the dal was done in the middle of the pandemic, peaked in the Summer of 2020 at a high of about $282 when many of these diagnostic stocks were riding high. Like what were they thinking? We told you we bought the stock , in late November in the low 20s and sold in the low 30s, so we are doing it again picking up QDEL again on Tuesday at $23+. Today they also announced a new immunoassay platform with Lifotronic Technology Corp.that will integrate all their assays to drive cost efficient scalable growth in a wide variety of laboratories.with a broad testing menu of 70 assays.
QDEL offers good value with very low price/sales ratio of 0.57, a FWD/PE of 7.96 a P/cash of 9.43 and analyst coverage with Price targets in the $30-40 range. The stock took a humble from the high 20s last week on reported earnings that showed 8% growth in laboratory Q4 sales totaling $724M. Respiratory revenuer the year was $402m down 20% because of lower COVID testing. Non- respirator revenues for 2024 were $2.24 growing at 5%.EPS and sales guidance for 2026 were disappointing so we are betting they will do better especially with a new product with a full complement of assays.
Here are other long trades and SMID stocks to watch in the coming months:
ABOS (ABOS) P $2.45, Mkt Cap $148M. The stock bounced of recent lows of about $1.63 on good volume then spurted to $3.00 on speculation of news that never came out., but is expected soon. The Company is developing monoclonal antibodies and soluble amyloid beta oligomer therapeutics.for the treatment of Alzheimer’s Disease, with improved delivery to the brain through the blood -brain barrier.
Axsome Therapeutics (AXSM) P $183.30, Mkt Cap $9.24B. A new holding since early Jan. The Company is leading a new era in the treatment of CNS conditions, by identifying critical gaps in care and develop differentiated products with a focus on novel mechanisms of action that enable meaningful advances in patient outcomes. See www.axsome.com for details of products and Pipeline, Some of the conditions being treated are : migraine, depression and Alzheimer’s Disease agitation. Revenues are $561M and the next earnings report is FEB 23. Preliminary 2025 product sales are expected to be $638M.
XENCOR 2025 (XNCR) P$11.54, Mkt Cap $824M. We bought this stock at the end of the summer in the $8-!! range because of its low valuation, cash position of about $700M , engineered antibody technology and pipeline of clinical devilment candidates for cancer and autoimmune diseases. The stock ran up to about $18 with good analyst coverage and upgrades but because no milestones nor significant deals were announced, impatient traders moved on. We are holding most of our positions.