2 Stocks That Should Move Higher as Massive Sector Rotation Continues
The ongoing rotation out of big tech and into small caps is something to behold and it presents an opportunity for investors.
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The massive sector rotation that began last week when there was a better than 500 bps divergence between the small-cap Russell 2000 and the NASDAQ on Thursday (the biggest daily gap since 2001) has continued this week. Tuesday saw the tech-heavy index end in the green by just .2% while the Russell 2000 jumped another 3.4% and the Dow rose nearly 750 points on the day as well. The S&P 500 was up a more pedestrian .64%.
I don’t want to sound my age, but I remember when this sort of move in the markets would unfold over several months. Now, with so much equity volume driven by algorithmic trading programs, they can happen in the blink of an eye, comparatively. While I believe the major indices like the S&P 500 and NASDAQ are still overvalued, there still seems to be some value in small- and mid-cap stocks. This puts me in line with Tom Lee and Stanley Druckenmiller, among others. It is also why approximately 80% of the half of my portfolio within covered call positions are around these holdings.
Several of these names have had big runs over the past week. Here are a couple I still think could have further upside:
Let’s start with Blade Air Mobility, Inc. BLDE, a company that operates both as an air/helicopter taxi service as well as an organ transport concern. The company has a rock-solid balance sheet and is seeing solid revenue growth from its air transport business and even faster growth from its organ delivery segment. The company easily beat Q1 expectations with its numbers and I expect Blade Air Mobility to do the same when it posts second quarter results in three weeks. Management is doing a commendable job reducing net losses and moving the company toward profitability. The stock still seems cheap on a price to sales basis given its growth and cash on the balance sheet.
The shares of Avadel Pharmaceuticals AVDL have had a nice blip up in recent trading sessions. More upside for the stock could well be ahead. The company is locked into a litigation battle with much-larger Jazz Pharmaceuticals JAZZ over its primary asset, a compound called LUMRYZ, which is now FDA approved for the treatment of excessive daytime sleepiness or cataplexy in adults with narcolepsy. Jazz’s Xyrem is approved for the same indication, but that compound has to be taken twice a day compared to LUMRYZ’s once-daily dosage, which is a big differentiator in the narcolepsy space.
LUMRYZ is being evaluated in late-stage studies for additional indications and litigation should be settled in Avadel’s favor by, hopefully, year's end. This is a name that I particularly like as a covered call holding as the options have solid liquidity and are lucrative against the equity.
And those are two names that should move higher if the recent rally in small caps still has legs in the coming weeks.
At the time of publication, Jensen was long AVDL, BLDE and JAZZ.
