Small-Cap Names I'm Buying
It seems likely that small-cap stocks are due for a reversion to the mean and investors should take a look at these names.
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As I teased in my column on Wednesday, I have been adding exposure to several small-cap concerns in my portfolio, largely via covered call orders. The small-cap Russell 2000 has greatly underperformed the Nasdaq and S&P 500 so far in 2024, after doing the same in 2023. At some point, there has to be some "reversion to the mean" in trading action. That seems likely in the second half of the year, as not even Nvidia NVDA can grow to the sky.
Let’s take a look at some small- and mid-cap names that I have added to in June.
Let’s start with the easiest trade I made this week, which was picking up some additional equity in Altimmune ALT, a small-cap name that has a promising GLP-1 weight loss candidate in development. The shares dropped just over 15% on Wednesday, largely due to the unexpected and tragic passing of the company’s CEO.
Now, if the CFO had resigned out of the blue or was under a cloud of a scandal, that might be another matter. But the action on Wednesday just appeared to be extremely knee-jerk, especially when company’s primary drug candidate posted some promising trial data on Monday that showed less of study individuals' weight loss came from lean muscle than either GLP-1 blockbuster drugs Wegovy or Zepbound. With a market cap of just less than $500 million, Altimmune would represent a bite-sized acquisition for a larger pharma player looking to establish a beach head in the burgeoning GLP-1 space.
I also added some shares in mid-cap refinery concern PBF Energy PBF, which I have done before as a successful covered call trade anytime the stock has fallen back to the low $40s. Refiners have pulled back in the second quarter as crack spreads have come down. However, they possess assets with some moat-like features as the last large refinery complex in the U.S. came online in the late '70s. PBF trades at four-times FY2023’s earnings and has a dividend yield of just over 2%. That is more than cheap enough for me.
I have also reloaded my stake in Ocular Therapeutix OCUL after some previous covered-call positions expired in the money earlier this month. This ocular-focused commercial stage concern has a market cap of just over $1 billion. The company is seeing decent sales growth with its product DEXTENZA. Ocular Therapeutix is also getting some recognition from analysts around some of its promising pipeline assets, which triggered a price target hike and upgrade from TD Cowen last week.
The most exciting candidate under development is called Axpaxli, which looks like it could have substantial potential in the large wet AMD market. Pivotal trial results should be out around evaluation for that indication in the first quarter of next year. The company also has nearly $500 million of cash on its balance sheet, providing developmental funding well into 2028.
And those are two small-caps and one mid-cap name I have accumulated here in June.
At the time of publication, Jensen was long ALT, OCUL and PBF.
