Why This Trio Could Stage a Third-Quarter Breakout

We're just a couple of days into the new quarter, and while the early broad-market returns are good overall, it got me thinking -- are there any stocks poised to rally going forward? Obviously, three months from now, there will be winners and losers, but trying to put one's finger on them, in advance, is the tricky part. Therefore, I decided to take a look at some names that have historically outperformed during the third quarter to see if there might be a buying opportunity or two. Three names I came across in my research are BioMarin Pharmaceutical Inc. (NASDAQ:BMRN), Regeneron Pharmaceuticals Inc (NASDAQ:REGN), and Sigma Designs Inc (NASDAQ:SIGM).

The table below comes courtesy of Schaeffer's Senior Quantitative Analyst Rocky White, and lists 34 stocks that have done exceptionally well during the past decade, specifically in the third quarter. All of the names were positive at least 80% of the time, in fact. Below the chart, you'll find a more in-depth breakdown of BMRN, REGN, and SIGM.

BioMarin Pharmaceutical Inc. (NASDAQ:BMRN)

BMRN has been positive in eight of the past 10 third quarters, averaging a three-month gain of 14.4%. Moreover, the stock is a long-term outperformer, soaring 50% year-to-date to trade at $135.74, and more than doubling year-over-year. Late last month, the drugmaker topped out at a record $141.51.

In spite of this impressive run, options traders have been quite put-skewed. BMRN's Schaeffer's put/call open interest ratio (SOIR) of 0.63 ranks in the 86th annual percentile. What's more, the stock's short interest ratio of 5.3 indicates there's plenty of sideline cash available. Should BMRN have another strong third quarter, a capitulation among these skeptics could further energize the shares.

Regeneron Pharmaceuticals Inc (NASDAQ:REGN)

Sector peer REGN has also been impressive during the third quarter, advancing nine times in the previous 10 years, and sporting a typical three-month jump of 22%. More recently, the shares could be seen rallying 24% in 2015 to trade at $508.89, and consolidating atop the half-millennium $500 level -- which roughly corresponds with the equity's rising 40-day moving average.

However, skeptics have been busy at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), buying to open 1.22 puts for every call over the last 10 days. This ratio registers in the 84th annual percentile. Should these doubters throw in the towel, it could result in tailwinds for REGN.

Similarly, 6.1% of the stock's float is sold short. At REGN's average daily volume, it would take one week to buy back all of these shorted shares. Simply stated, the security could be on the brink of a short-covering rally.

Sigma Designs Inc (NASDAQ:SIGM)

Finally, SIGM sports an average third-quarter gain of 20.7% over the past decade, and has been positive in eight of the previous 10 years. Moreover, shares of the semiconductor firm have soared 143% over the last 12 months to trade at $11.60, boosted in early June by a standout first-quarter earnings report and subsequent round of bullish brokerage notes.

However, not everyone's buying the hype. SIGM's 50-day ISE/CBOE/PHLX put/call volume ratio ranks higher than roughly three-quarters of all comparable readings from the past year. A capitulation among these skeptics could further boost the stock.