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Small-Cap Standout: Geron Corporation (GERN)

Skeptics surround GERN, despite its impressive year-to-date gains

by 12/17/2013 10:43:35 AM
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Small-cap stocks have been outpacing their mid- and large-cap peers for some time now, as evidenced by the Russell 2000 Index's (RUT) nearly 32% year-to-date return. By comparison, the S&P 500 Index (SPX) and Dow Jones Industrial Average have tacked on 25% and 21%, respectively, in 2013. Three names within this sector that could offer up the potential for affordable contrarian plays include biopharmaceutical concern Geron Corporation (NASDAQ:GERN), robotic-technology supplier iRobot Corporation (NASDAQ:IRBT), and communications equipment issue ADTRAN, Inc. (NASDAQ:ADTN). As of Monday's close, the market capitalizations for these three companies stood at $622.22 million, $899.34 million, and $1.51 billion, respectively.

iRobot Corporation (NASDAQ:IRBT) has nearly doubled in 2013. What's more, the stock is up about 19% today to hover near $37.13, after Raymond James raised its outlook on the equity to "strong buy" from "outperform." With short interest accounting for more than 10% of the security's available float -- or nine sessions' worth of pent-up buying demand -- IRBT could also benefit from a round of short-covering down the road.

Meanwhile, only one out of 10 analysts covering ADTRAN, Inc. (NASDAQ:ADTN) maintains a "buy" recommendation for the stock, in spite of its 35% year-to-date advance. Plus, the consensus 12-month price target of $23.05 stands at a discount to the equity's current perch at $26.31. In other words, should the stock continue its upward trajectory, a round of upgrades and/or price-target hikes could translate into a contrarian boon for ADTN.

Geron Corporation has had quite a run on the charts in 2013, with the shares up 231% to trade at $4.67. As a point of comparison, the broader Nasdaq Composite has tacked on about 33% in the same time frame. This upward momentum has been highlighted by the equity's 10-week moving average, which has not only given GERN a lift, but also provided a foothold during the stock's most recent pullback.

Despite this technical tenacity, sentiment around the Street has tended toward the bearish side. In the options pits, Geron's 50-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.23 ranks in the 92nd percentile of its annual range. Simply stated, puts have been bought to open over calls with more rapidity just 8% of the time within the past year.

Elsewhere, short interest soared 18.9% over the past two reporting periods, and now accounts for a healthy 5% of GERN's available float. Meanwhile, the four analysts covering the stock have split the pole, doling out two "buy" or better ratings, compared to two tepid "holds." From a contrarian perspective, an unwinding of these bearish bets or a round of upgrades could assist GERN in its trek up the charts. In fact, Needham raised its outlook on GERN to "buy" from "hold" last week, following positive statements from its most recent review of imetelstat study results.

One final note -- now appears to be an opportune time to place bets on Geron Corporation (NASDAQ:GERN) at a bargain. The stock's Schaeffer's Volatility Index (SVI) of 105% rests just 12 percentage points from an annual low, implying near-term options are inexpensive, from a volatility perspective.

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