Looking Past the AI Leaders: Why I Bought This Biotech After Earnings
Stock picking is coming back to life. Here’s an example of a name that offers lower risk after earnings news.
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On Thursday morning we have green across the board and improved breadth at 54%. There was an early dip that brought in some aggressive dip buyers.
Most notable is that new highs are exceeding new lows at around 140 to 115. That is the first time that has happened in a few days, and while the margin is modest, it is a shift in the right direction. It reflects better breadth and more interest in stock picking among secondary stocks outside AI technology.
Looking Past the AI Leaders
While many pundits and “experts” are still focused on the parabolic moves in semiconductor and AI infrastructure stocks, more strategic traders are focusing on stock picking in situations with solid charts and interesting fundamentals. One of the easiest mistakes to make in a market like this is to focus on the illogic of the indexes and to miss the real opportunities. The indexes will do what they do, but they are not where the work is being done right now.
I’m finding a number of smaller stocks that have been lagging the wild action in technology but have been developing good chart patterns and have compelling fundamental stories. I listed three such names yesterday and am finding other names that I’m adding to my radar.
Earnings Reports as a Hunting Ground
The most fertile hunting ground for these picks is recent earnings reports. Quite often a good report sees a poor response, and it drives existing holders crazy because it seems unjustified. The reason this happens is usually some combination of expectations already being priced in, positioning that has to be unwound, and index or ETF pressure that sells a stock regardless of what the fundamentals may indicate.
The current holder views the muted reaction as a verdict on the company when it is really just the market needing time to digest the news. If you are a buyer it creates an interesting opportunity for accumulation, as eventually the market will recognize the truth of the fundamentals. The trading around an earnings report often doesn’t have much correlation to a change in valuation, and therein lies the opportunity.
An example of a name that I jumped on this morning following its earnings report is Precigen (PGEN). I have developed an AI template that allows me to plug in the earnings announcement and conference call and gives me a quick review of the positives and negatives. This allows me to be more confident in my opinion of the stock and quickly develop a plan for trading it. My AI-generated analysis of Precigen was positive, so I’ll be more aggressive with my preliminary buys for client accounts at Hammerhead Financial Strategies.
I’ll get into Precigen in more detail later, but suffice to say at this point it had a solid beat, has a couple of analyst target increases, and there is a large short position ripe for a squeeze. I took an initial position and plan to ramp that up as it develops.
One of the big benefits of buying after a strong earnings report is that there is usually far less risk. The news is already out, so you are no longer exposed to the binary event of the report itself. You are simply waiting on the repricing, and that takes time. Existing holders may be frustrated when their favorite name doesn’t do much on great news, but that is the perfect spot for entries.
I’ll keep digging for more opportunities, but I will say it makes me optimistic about what lies ahead.
At the time of publication, Re Shark was long PGEN.
