Baird Downgrades One of This Year's Best Stocks

ARWR stock remains heavily shorted even though it's tripled in 2019

by Josh Selway

Published on Oct 24, 2019 at 9:59 AM
Updated on Oct 24, 2019 at 10:00 AM

Gene silencing expert Arrowhead Pharmaceuticals Inc (NASDAQ:ARWR) has been a major winner in 2019. The shares are up more than 200% year-to-date and have added 41% in the past month alone, while yesterday touching their highest point in almost 12 years. However, one brokerage firm is telling investors it's time to move to the sidelines on ARWR stock.

Just this morning Baird came in and downgraded its rating on the healthcare concern to "hold" from "outperform," differentiating itself from most other brokerage firms. For instance, five of the six covering analysts had "strong buy" ratings on the stock as of yesterday's close.

At the same time, Arrowhead Pharmaceuticals is trading just below its average 12-month price target of $40.11, last seen at $38.06, down 4% on the day. Just going by technical indicators, it would seem that the equity was due for a dip anyway, since its 14-day Relative Strength Index (RSI) hit 80 yesterday, showing clear overbought conditions.

ARWR options traders, meanwhile, have historically targeted calls at a rapid pace, something that likely paid off nicely for them. Not only has call buying dominated at the major options exchanges in recent weeks, but two of the top open interest positions are the December 30 and 35 calls.

Some call buying could be connected to short sellers, however. These traders control over 18% of the stock's float, so they may have been using call options to hedge against another rally in Arrowhead Pharmaceuticals shares. Of course, the 16 million shares sold short represent more than 12 days' worth of buying power, meaning if these bears begin to cover, there's a lot of buying power on the sideline that could come in and help fuel gains.

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