2 Drug Stocks That Could Heat Up In July

REGN stock has generated the highest July returns over the past 10 years

Managing Editor
Jun 26, 2018 at 12:13 PM
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Regeneron Pharmaceuticals Inc (NASDAQ:REGN) and PTC Therapeutics, Inc. (NASDAQ:PTCT) are two drug stocks struggling today, with the former down 1.5% to trade at $325.28, and the latter down 5.5% to trade at $31.86. Nevertheless, heading into a new month and the dog days of summer, both stocks are flashing pretty significant bullish signals.

Regeneron Stock Outperforms In July

Regeneron stock has shed 38% year-over-year, and fell to a nearly four-year low of $281.89 on May 9. Since then, however, REGN has regained 15%, and is on the verge of wrapping up its best month since May 2017. There could be even more room for the biotech name to run in July, if history is any guide.

According to data from Schaeffer's Senior Quantitative Analyst Rocky White, over the last 10 years, REGN has been one of the best stocks to own in July, averaging the highest monthly return of all S&P 500 components, up 15.37% and positive 90% of the time. A move of similar magnitude in one month would put the equity back above the $375 level for the first time since early February.

Daily REGN Stock Chart

Options buyers clearly see something they like, too. On the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), Regeneron stock has racked up a 10-day call/put volume ratio of 4.20 -- 4 percentage points from an annual high. This indicates that traders have bought to open REGN calls over puts at a much faster-than-usual clip during the past two weeks.

PTCT Just Pulled Back to a Bullish Trendline

PTC Therapeutics stock, which has rallied more than 91% in 2018, could be poised to keep climbing next month as well. Shares of the pharma name promptly gave back 40% following their ascension to a June 18 annual high of $52.95 -- fueled by upbeat drug data. However, PTCT stock has pulled back to a trendline that's marked a prime entry point for bulls in the past, suggesting it could be time to speculate on a rebound.

Looking closer at the charts, PTCT shares are within one standard deviation of their 40-day moving average. According to White, the last five times PTCT has pulled back to this trendline after a lengthy stay above it, the stock went on to average a one-month gain of 9.07%, and was higher 80% of the time.

Daily Stock Chart PTCT

Although short interest has nearly halved since mid-February, a renewed rally could shake some of the remaining shorts loose. The 3.6 million shares sold short still represents 12% of the drug concern's total available float. At PTCT's average daily trading volume, it would take exactly one week for shorts to cover their bearish bets.

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