Three Small-Cap Names I Am Buying as Investor Complacency Grows
There are some biopharma names where I am still finding value.
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Well, the market certainly seems bound and determined to continue to move up.
A widening potential conflict in the Middle East that could eventually draw in Iran and the United States barely registers. The biggest monthly drop in consumer confidence Tuesday did nothing to stop the relentless move up in equities. Some would call this resilience; I am much more in the camp of investor complacency. However, the bulls are currently in charge of the market.
One of the few places where I am allocated "dry powder" in my portfolio in this market is in the biotechnology/biopharma sector. It is one of few sectors I am still finding reasonable values these days. The SPDR S&P Biotech ETF XBI is trading basically at the same levels as five years ago. And, in theory, lower interest rates should be beneficial to the high beta parts of the market like biotech. They should also marginally drive additional merger-and-acquisition volume. With the caveat that almost all the new money I am deploying in the market is via covered-call orders, here are a couple of names I have added exposure to even as the market continues to march higher.
I added a few shares to ANI Pharmaceuticals ANIP recently as the shares have slipped some 20% from recent highs. This biopharma concern is a classic GARP or "growth-at-a-reasonable-price" trade. The company just completed its most recent acquisition and looks well positioned to churn out revenue growth in the mid- to high teens in coming years. ANIP is currently trading at just under 14 times earnings.
I also slightly increased my holdings in ACADIA Pharmaceuticals ACAD as this biopharma is near the lower end of a trading range it has occupied for six months now. The company just appointed a new CEO and ACADIA is riding 30% revenue growth this year as it becomes profitable. The company also had a large cash hoard on its balance sheet. Options against the equity are quite liquid as well.
Finally, I have substantially boosted my position in Corbus Pharmaceuticals CRBP after this biopharma stock lost over 60% of its value in trading last week. The ironic thing around the steep pullback is it had nothing to do with anything the company actually did itself. The pullback came after Novo Nordisk NVO reported mid-stage data from its candidate monlunabant that was less than hoped for in treating obesity. Corbus is developing CRB-913 for obesity, that uses a similar mechanism of action to monlunabant.
However, CRB-913 is not even Corbus’ most advanced pipeline asset. That designation would belong to CRB-701. This Antibody Drug Conjugate or ADC is targeting urothelial or cervical cancer and could eventually be a superior solution to PADCEV, which is projected to have potentially $5 billion in annual sales by 2028. It was Phase 1 data from this compound earlier this year that drove a massive rally in the stock of Corbus. Nothing has changed on this front. The nature of last week's pullback was something that did not escape the ire of analysts. This illogical sell-off was mentioned by several analyst firms including Mizuho Securities over the past week. Since last week's debacle in the shares, five analyst firms, including Jefferies and Oppenheimer, have reiterated buy ratings on CRBP with price targets ranging from $74 to $105 a share. Corbus currently trades just above $18 a share after last week’s knee-jerk decline.
At the time of publication, Jensen was long ACAD, ANIP and CRBP.
