5 Stocks to Buy for the Rotation Into Small-Cap Biotechnology
If the rotation out of big-cap tech continues, here are some small-cap biotechnology names that I favor.
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Selling in the big-cap technology stocks continues Thursday, although there has been a slight bounce attempt in the Nasdaq 100, which is down this week. The DJIA and Russell 2000 IWM have gains, and breadth is running positive, which are strong signs that the rotational action out of technology and into the rest of the market is continuing.
Bitcoin is weak, but outside of technology and semiconductors, it doesn’t look bad at all. We saw small-caps weaken late in the day Wednesday as the selling pressure on technology continued, and that may continue to be a problem.
While many strategists and pundits are focused on this very poor technology action and the breakdown in the Magnificent Seven names, it is making me more optimistic about the opportunities in the many smaller stocks that are holding up quite well.
My favorite small-caps are primarily in the biotechnology sector. This sector topped in the fall of 2021, and had a nasty downtrend until it hit bottom about a year later in fall 2022. Since then, it has been in a trading range but broke out on July 10. The sector is up 2% on Thursday and is leading the market. But it still is far below its all-time highs.
I’ve discussed my small-cap favorites many times, but here is a rundown of where they stand right now.
1. Humacyte HUMA and HUMAW. I recently discussed HUMA as my top pick for the remainder of 2024. It has made a very good move subsequently and is now setting up very nicely as it awaits an FDA decision around August 8 on its artificial veins for use in traumatic injury. It has a very good likelihood of being approved, and the company is hiring a sales force, which should produce their first revenue before the end of the year. This remains my top pick.
2. Xeris XERS. Xeris has been a very frustrating name. It has very good revenue and growth on three key products, but the market wants news on partnerships or licensing deals. There are several things in the works, but there is no way to know when an announcement will be made. The chart looks very good, and earnings are due out on the morning of August 8.
3. Sensus Healthcare SRTS , Sensus sells equipment used for the treatment of sun cancer and other medical issues. It is very small and is not followed. The company had a great first quarter, with revenue up over 200% and EPS of $0.14. Management has hinted that similar numbers should be seen in the second quarter. The chart looks great as it tests overhead resistance at $6.50.
4. Lantheus Holdings LNTH. Lentheus stock exploded higher earlier in July after the Centers for Medicare and Medicaid Services changed rules for its Pylarify imaging agent. The stock has been pulling back for the past two weeks and is starting to find support around $115. It will announce earnings on the morning of July 31, and analysts are very optimistic about the prospects for good news.
5. Viking Therapeutics VKTX. Viking jumped 30% on Thursday following news that its obesity drug is moving into Phase 3 testing. The results of a number of its programs are quite strong, and the company is moving faster than expected. There have been some worries about competition, but the news demonstrates that VKTX still has some best-in-class results. I’m looking to add to my positions on pullbacks.
There are several other names I like as well, including Mereo BioPharm MREO, Fulcrum Therapeutics FULC, and TG Therapeutics TGTX, which I will discuss in further posts.
At the time of publication, Rev Shark was long HUMA, HUMAW, XERS, SRTS, LNTH, VKTX, MREO, FULC and TGTX.
Please note that due to factors including low market capitalization and/or insufficient public float, we consider several of the names mentioned to be small-cap stocks. You should be aware that such stocks are subject to more risk than stocks of larger companies, including greater volatility, lower liquidity and less publicly available information, and that postings such as this one can have an effect on their stock prices.
