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Positioning BIOTECH Stocks for a Q4 Rally

• Biotech stocks are in a “choppy” volatile mode as we await clarity from earnings this week through early November. But many SMID stocks have done very well.
• The biotech sector (XBI) made an interim peak in late February followed by an active summer in very choppy trading.
• There is a lot of speculation in SMID stocks with innovation from new companies in AI and RNA therapeutics, new drugs for nephology and ophthalmology.

Healthcare stocks underperformed for the month and continued lagging through the quarter up only 6%, but up about 14%YTD. Unless medical devices and biotech can pick up growth in Q4 the sector is no longer looks defensive.

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Large Cap BIopharmaceuticals 

Many large caps are off their highs so we are reluctant to rebalance our portfolio until we get through Q3 earnings, We added a little to our ABBV up 22% YTD and RHHBY positions. We still hold our new position in Pfizer (PFE) bought at about $29 and with a low forward PE of 10 and a 5.8% dividend with a P/S of 2.94. PFE was down slightly on earnings today despite a raised outlook from Paxlovid. Regeneron (REGN) has been very weak  down 11% MTD, up only 6% YTD. We’ll get more color from earnings on Oct 31 and competition on Eylea sales which has been a concern. Here are the metrics for large caps  as of SEP 9. Note that the Fidelity Select Biotech Fund (FBIOX) is up about 20% YTD despite the shuffling. LLY is still up over 55% YTD and VRTX is up 16.34% YTD.

LONG: ABBV, PFE, LLY, VRTX, GILD, MRK, AZN, REGN. FBIOX and PRHSX.

SMID Life Science Trades 

We developed this list earlier in 2024 with the objective of finding short term momentum trades but also to pick long term winners in the biotechnology sector. We have traded many of these stocks but have identified some of them for near term appreciation. We currently hold many of them but we would recommend that Large Cap biopharmas be the focus of your portfolio.All of these companies were pre-screened for cash, core technology and analyst following. The last column gives RS or relative strength a momentum parameter.

There are many new well funded companies in the clinical phase that bodes well for nimble traders in Q4.

Here are some trading tips to consider with these SMID stocks:

• If the XBI is up 1% or more there is good correlation with these picks.
• Strength of small caps in general (IWM IJR etc.) correlate well with SMID biotechs.
• If all three-ARKG, IBB, XBI-major speculative SMID ETFs are up it is a very strong buy signal for this group.
• M&A and licensing deals are at an ebb right now but should pick up after the election.

Our best recent picks YTD are:

CorMedix (CRMD) up 246% YTD, UP 68% MTD. CorMedix Inc., a biopharmaceutical company, focuses on developing and commercializing therapeutic products for the prevention and treatment of infectious and inflammatory diseases in the United States. Its lead product candidate is DefenCath, an antimicrobial catheter lock solution to reduce the incidence of catheter-related bloodstream infections in adult patients with kidney failure.

Catalyst Pharma (CPRX) up 27.67% YTD,  Up 3.8% MTD. Catalyst Pharmaceuticals, Inc., a commercial-stage biopharmaceutical company, focuses on developing and commercializing therapies for people with rare debilitating, chronic neuromuscular, and neurological diseases in the United States.

Denali Therapeutics (DNLI) up 26.15% YTD, up 21.85 % MTD. Denali Therapeutics Inc., a biopharmaceutical company, develops a portfolio of product candidates engineered to cross the blood-brain barrier for neurodegenerative diseases and lysosomal storage diseases in the United States.

Exelixis (EXEL) up 16.17% YTD up 6.96% MTD. Exelixis, Inc., an oncology company, focuses on the discovery, development, and commercialization of new medicines for difficult-to-treat cancers in the United States.

Geron (GERN) up 92.42% YTD, down 10% MTD. Geron Corporation, a late-stage clinical biopharmaceutical company, focuses on the development and commercialization of therapeutics for myeloid hematologic malignancies.

Illumina (ILMN) up 4.8%YTD, up 12.52% MTD. NEW. Illumina, Inc. offers sequencing- and array-based solutions for genetic and genomic analysis in the United States, Singapore, the United Kingdom, and internationally. It operates through Core Illumina and GRAIL segments

Natera (NTRA) up 87% YTD, down 5.85% MTD. Natera, Inc., a diagnostics company, develops and commercializes molecular testing services worldwide. Its products include Panorama, a non-invasive prenatal test that screens for chromosomal abnormalities of a fetus, as well as in twin pregnancies…..

Supernus Pharmaceuticals(SUPN) 17.24 %YTD, up 13.3% MTD. Supernus Pharmaceuticals, Inc., a biopharmaceutical company, focuses on the development and commercialization of products for the treatment of central nervous system (CNS) diseases in the United States.

Veracyte (VCYT) up 20% YTD, up 0.96% MTD. Veracyte, Inc. operates as a diagnostics company in the United States and internationally. The company offers Afirma Genomic Sequencing Classifier for cancerous thyroid nodules; Decipher Prostate Biopsy and Radical Prostatectomy for prostate cancer diagnosis; Prosigna Breast Cancer Assay for breast cancer diagnosis; Percepta Nasal Swab Test for lung cancer diagnosis; and Envisia Genomic Classifier for diagnosing interstitial lung disease, including idiopathic pulmonary fibrosis. It is also developing Envisia Classifier, the nCounter analysis system; and LymphMark for lymphoma subtyping test.

Here are several stocks from the list that should rally this quarter through mid- January at the time of JPMorgan Healthcare Conference: Adaptive Biotechnologies, Crenetics (CRNX), Pacific Biotech (PACB), Rezolute (RZLT), Tempest AI (TEM), Vericel (VCEL) Quidel/Ortho(QDEL). The end of the year is a seasonally strong time for small caps and the life sciences sector because of investment meetings and deals.

Obviously the biotech market is dynamic and volatile so stay tuned for updates especially during earnings season. There are many unusual aspects of the 2024 market like the “soft landing economy” and the FED ,  the strongest bull market since the 80s, an election year with extreme polarization,  AI and MEGA Cap stocks, with most stocks at high relative  valuations.

• Data and misc information is from FinViz and yahoo!finance.

RAYNO LIFE SCIENCE TRADING LIST 10/27/24

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