3 Beloved Biotechs Ripe for Downgrades

Biotechs Celldex Therapeutics, Inc. (CLDX), Celgene Corporation (CELG), and Alexion Pharmaceuticals, Inc. (ALXN) could have room to fall

by Alex Eppstein

Published on Sep 28, 2015 at 3:08 PM

Biotech stocks have been taking a hatchet to the Nasdaq Composite (COMP) of late. However, there could be room to fall, should analysts change their tune. Among the 66 biotechs we follow, the percentage of "buy" ratings stands at 68% -- making it one of the three most bullish sectors among the brokerage crowd, along with alternative energy and media, even as analysts in general are collectively "meh" toward the market as a whole.

While some of the stocks have merited the positive attention they've received, several others have not. Here's a list of 20 beloved healthcare stocks over $7, courtesy of Schaeffer's Senior Quantitative Analyst Rocky White, followed by a closer look at three biotechs ripe for downgrades.

150928Biotech

Celldex Therapeutics, Inc. (NASDAQ:CLDX) has tumbled 10.6% this afternoon at $10.89, bringing its year-to-date deficit beyond 40%. What's more, the shares earlier panned a two-year low of $10.73, and are down more than 26% in September.

As such, short-term options players have been gravitating toward puts over calls, based on CLDX's Schaeffer's put/call open interest ratio (SOIR) of 1.54. Not only does this indicate put open interest outstrips call open interest among options with a shelf-life of three months or less, it also sits just 2 percentage points from an annual put-skewed peak. On the other hand, 100% of analysts rate CLDX a "strong buy," leaving the door wide open for eventual downgrades.

Celgene Corporation's (NASDAQ:CELG)
losses have been steep, as well. Today, the stock has given back 3.1% to trade at $105, and roughly 11% in September. Looking more closely at the charts, the shares have moved decisively lower, after being rejected by their 50-day moving average multiple times over the past two months, and are on pace for a year-to-date closing low.

Meanwhile, option traders have been buying to open puts over calls at an accelerated clip, trying to capitalize on another move lower. CELG's 10-day International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) put/call volume ratio of 0.77 ranks in the 82nd percentile of its annual range. Analysts, however, have taken a more glass-half-full approach. Specifically, 13 of 16 brokerages rate CELG a "buy" or better -- with not a single "sell" in sight -- putting the struggling stock at risk for a round of downgrades.

Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) dropped to an annual low of $142.02 earlier, and was last seen 4.7% south of breakeven at $142.17. This is more of the same for a security's that's plummeted 23% year-to-date, and more than 15% in September.

Based on ALXN's SOIR of 2.10, put open interest roughly doubles call open interest among options in the front three-months' series. Also, this SOIR registers above 78% of comparable readings from the prior year, hinting at a pronounced put bias. Taking a more optimistic stance is the brokerage bunch, as 13 "strong buy" recommendations outweigh four "hold" ratings and not a single "sell." A future round of downgrades could ensue, creating more headwinds for ALXN.

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