Amid the Ugly Action, I'm Updating My Strategy on This 2025 Pick

The market is under heavy pressure again on Thursday, and that is creating some mispricing in small stocks. Here I'll give my take on the market's ugly action and on a small-cap biotech I've stuck with this entire year.

After a mediocre bounce try on Wednesday, the market is struggling on Thursday. Breadth is poor, with only about 40% of stocks in positive territory. The Nasdaq 100  (QQQ) and Magnificent Seven  (MAGS)  are lagging again, while oil and some financials are exhibiting relative strength.

As I discussed in my opening post, I am concerned that this time it is different, and the valuation issue with AI stocks may gain traction. That looks to be happening, but there are still some dip buyers out there that may offer a little support.

I will be focusing on small-cap picks, like Xeris  (XERS) , which has treated me well this year.

On Jan. 2, 2025, I named Xeris as my top small-cap stock pick for 2025. After a sharp drop on Thursday following its earnings report, the stock is up around 145%. By comparison, the only stock in the S&P 500 that has done better this year is Palantir (PLTR) , which is up about 150%.

This is a good example of why I focus so much on small-cap stocks that most people have never heard of. The stocks are very risky, but when you do find a winner, they will beat big-cap names by a substantial margin. It is impressive that a little name like this can beat out 500 big stocks that are covered by the best minds on Wall Street, but that is because they are playing a different game than an aggressive trader like me.

In any event, Xeris is trading down about 15% today following its earnings report. The report was solid and slightly beat estimates, but some holders were disappointed that it wasn’t a bigger beat; in my view, that creates an opportunity to add to my position.

Xeris achieved 40% year-over-year product revenue growth, with its Recorlev product increasing sales by 109%. That is expected to continue to grow at a very strong pace. Xeris is expected to be profitable in 2026 with earnings per share of $0.17. But the main reason that I believe Xeris will move even higher is that it is developing an injectable drug for hypothyroidism under the code name XP-8121. It is not expected to launch until 2027, but this is a billion-dollar market, and the numbers have not yet been reflected in analysts' models.

One analyst at Oppenheimer has partially priced in the impact of XP-8121 and raised his target on the stock to $18 from $8. Other analysts will eventually follow.

In the meantime, I view any pullbacks in Xeris as an opportunity to increase my position, and I’ve added some today.

This is an ugly market right now, but it creates opportunities like Xeris, which I am taking advantage of.

At the time of publication, DePorre was long XERS.