3 Pharmaceutical Stocks for Your 2Q Watch List

Celgene Corporation (CELG), GlaxoSmithKline plc (ADR) (GSK), and Vertex Pharmaceuticals Incorporated (VRTX) have historically outperformed in the 2Q

by Alex Eppstein

Published on Apr 2, 2015 at 8:04 AM
Updated on Apr 20, 2015 at 5:32 PM

Earlier this week, we saw the first quarter of 2015 come to a close. To say the least, the three-month period was a choppy one. However, as we get into the second quarter, the question you may be asking is: What next?

Therefore, with the help of Schaeffer's Senior Quantitative Analyst Rocky White, I decided to take a look at stocks that have historically outperformed during the second quarter of the calendar year -- with the hopes of putting my finger on a few names to watch going forward. (For a shorter time frame, here are three equities to have on your radar this month.) Below, you'll find the complete list of the stocks, all of which were positive at least 80% of the time over the last 10 years. Curiously, a number of them belonged to the pharmaceutical sector. So I decided to a dig a little deeper there and eventually honed in on Celgene Corporation (NASDAQ:CELG), GlaxoSmithKline plc (ADR) (NYSE:GSK), and Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX).

Best Second-Quarter Stocks

Celgene Corporation (NASDAQ:CELG)

CELG has been a technical beast over the last year, surging more than 55% to trade at $114.57. Late last month, the shares also hit a record high of $129.06, following some positive analyst attention. Looking ahead, the stock has been positive in eight of the past 10 second quarters, averaging a gain of 4.2%.

In spite of these standout technicals, traders have been buying to open CELG puts over calls at a much faster-than-usual pace. During the past two weeks at the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity has racked up a put/call volume ratio of 0.85 -- just 8 percentage points from an annual high. Echoing this, CELG's Schaeffer's put/call open interest ratio (SOIR) of 1.16 outstrips 88% of comparable readings from the previous 12 months. A capitulation among option skeptics could spell additional upside for the security in the months ahead.

GlaxoSmithKline plc (NYSE:GSK)

GSK has had a solid 2015, advancing more than 9% to perch at $46.69. Just yesterday, the stock tacked on 1.2% thanks to a price-target hike to 1,840P at Barclays, and a positive note from Cowen -- which said the pharmaceutical firm's shingles vaccine could be superior to Merck & Co., Inc.'s (NYSE:MRK) Zostavax. In terms of second-quarter performance, GSK has been positive in eight of the previous 10 years, advancing 3.3%, on average.

Should this trend continue, an unwinding of pessimism throughout the Street could result in tailwinds for GSK. Three-quarters of analysts covering the stock rate it a "hold" or worse, setting the stage for a round of upgrades. Also, the shares' average 12-month price target of $46.36 is below current trading levels, hinting at the possibility of additional price-target increases.

Vertex Pharmaceuticals Incorporated (NASDAQ:VRTX)

VRTX has been a long-term outperformer, as well, surging 61% year-over-year to rest at $116.43. Additionally, late last month, the equity topped out at a record $136.33. If that's not enough, the shares have been positive in nine of the last 10 second quarters, boasting a typical three-month gain of 25.2%.

Nevertheless, there's plenty of negativity toward VRTX on the Street. Half of the analysts tracking the shares rate them a tepid "hold" -- leaving the door wide open for potential upgrades. Also, the stock's 10-day ISE/CBOE/PHLX put/call volume ratio of 1.09 outranks 82% of comparable readings from the past 12 months. Should the weaker bearish hands begin to hit the exits, it could add fuel to VRTX's fire.

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