2 Biotech Stocks that Could Surge into 2018

ALXN and REGN are trying to bounce back from unusually poor September performances

by Josh Selway |

Published on Sep 26, 2017 at 12:46 PM
Updated on Sep 26, 2017 at 1:01 PM

Last month we featured Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN) and Regeneron Pharmaceuticals Inc (NASDAQ:REGN) as two stocks to watch in September, as both biotechs historically outperformed for the month. However, they've so far bucked this trend, underperforming since the end of August, ready to close September in the red. On the other hand, data suggests ALXN and REGN could both redeem themselves rather quickly. 

In fact, according to Schaeffer's Senior Quantitative Rocky White, these two have been the best two S&P 500 Index (SPX) stocks to own in the fourth quarter over the past 10 years aside from United Continental (UAL), with Regeneron averaging a huge 19.6% gain during the period and Alexion a gain of 15.8%. Shares of both companies have closed the three-month period in positive territory nine out of 10 times, too. 

best fourth quarter stocks

Looking closer, it doesn't appear options traders are too bullish on REGN. The security has a 10-day put/call volume ratio of 0.96, which ranks in the 81st annual percentile. So while call buying has topped put buying on an absolute basis, put buying has actually been much more popular than normal, relatively speaking. Moreover, put open interest comes in at 43,135 contracts, ranking in the high 83rd annual percentile. 

Many analysts have also been bearish toward the equity. The majority of brokerage firms covering the shares have issued "hold" or "strong sell" recommendations, and though the stock's average 12-month price target of $495.78 appears lofty, the security was trading above this level earlier this month. At last check, REGN was trading at $434.01. 

Options traders have historically been bullish on ALXN stock, however. The equity's 50-day call/put volume ratio of 2.34 shows call buying has more than doubled put buying in the last 10 weeks, and ranks in the bullish 93rd annual percentile. It's a different story in today's trading, though, with puts outpacing calls by a ratio of more than 4-to-1. 

And analysts have been much more upbeat toward Alexion. Sixteen brokerage firms are tracking the security, 13 of which say to buy it, while there are zero "sell" recommendations to be found. Plus, the average 12-month price target of $163.45 is well above the shares' current perch of $140.56. 

It should also be noted that it appears to be a good time to target short-term options on both these names. That is, REGN and ALXN's respective Schaeffer's Volatility Indexes (SVI) of 28% and 30% each rank only a few percentage points from 12-month lows, hinting at lower-than-normal volatility expectations at the moment. But while Alexion landed on our list of best stocks to buy in October, Regeneron has actually struggled during the month, so maybe aim a little further out in the future when speculating for an upside move. 
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