Short Covering Could Send 3 Biotech Stocks to Higher Highs

A round of short-covering could add fuel to the fire for soaring BioCryst Pharmaceuticals, Inc., The Medicines Company, and EXACT Sciences Corporation

Mar 13, 2017 at 3:32 PM
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Earlier today we took a look at 30 stocks that could be set to benefit from a round of short-covering, as identified by Schaeffer's Senior Quantitative Analyst Rocky White. Several sectors are particularly prevalent on the list, including "Biomedics Genetics." In fact, the very top spot belongs to biotech firm BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX). Below we'll a closer look at BCRX, as well as sector peers The Medicines Company (NASDAQ:MDCO) and EXACT Sciences Corporation (NASDAQ:EXAS), to see how each stock could be set to take off.

Short Interest Booms on BioCryst Pharmaceuticals Stock

Up 209% year-over-year at $8.62, shares of BCRX notched an annual high of $9.10 on Friday. Analysts seem to be on board, with two-thirds of following firms rating the stock a "strong buy," but traders don't appear to agree. Short interest has climbed by 30% in the two most recent reporting periods, and now represents more than 20% of BCRX's available float.

Short sellers aren't the only bears in the picture, either. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the stock's 10-day put/call volume ratio of 0.28, though heavily call-skewed on an absolute basis, ranks higher than 81% of the past year's reading. Likewise, BCRX sports a Schaeffer's put/call open interest ratio (SOIR) of 0.52 -- just 2 percentage points from an annual peak. Simply stated, puts have been unusually popular, leaving potential for unwinding bets to boost BioCryst Pharmaceuticals, Inc. shares.

Short Sellers Could be Hurting as The Medicines Company Climbs

After rocketing higher early last month, and tapping a record high of $54.70, MDCO stock has been consolidating in the $52-$54 range. The shares are sitting on a 56.3% year-to-date lead, at $53.24, and the brokerage bunch seems to see more highs ahead, with all eight tracking analysts giving the stock a "buy" or better recommendation.

Yet short interest is up nearly 20% over the last two reporting periods, and up 50% over the past 12 months. These pessimistic positions currently account for almost 24% of MDCO's total float. At the equity's typical daily volume, it would take more than two weeks to buy back all these bearish positions -- plenty of buying power to fuel The Medicines Company's next move higher.

Options Attractive as EXACT Sciences Corporation Looks to Burn Bears

EXAS has climbed 228% over the past 12 months, at $21.21, and pulled back to support at the 20-day moving average after hitting an annual peak of $24.50 earlier this month. That hasn't been enough to impress short sellers, though, as these bearish positions climbed 64% higher over the same period, with a record 33.4 million shares currently shorted. These bets represent 31% of the equity's total float, or 7.1 times EXAS' typical daily trading volume.

Options traders have taken a pessimistic approach, too, with the stock's 10-week put/call volume ratio of 0.59 on the ISE, CBOE, and PHLX clocking in just 1 percentage point from an annual put-skewed peak. But with all this potential for bearish bets to unwind, giving EXACT Sciences Corporation a boost, the stock is still presenting an attractive opportunity, offering a short-term options buying bargain

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