A big move is coming for biotech and pharmaceutical stocks.
After falling more than 20% over the past six months, an important indicator just flashed.
This indicates the industry is now too cheap to ignore.
It’s only a matter of time until the market comes around and bids it higher.
This Indicator Has Been Extremely Bullish
There has been a surge in stocks valued less than the cash on their balance sheet.
Outside of the March 2020 sell-off, there hasn’t been this many biotech and pharma stocks trading below their cash value in the past 10 years.
During that time frame, just under 10% of the industry has traded below cash value on average.
Today, that number is above 14%.
It may not seem like a big difference, but it is. It equates to an additional 71 stocks.
To understand why this is important, you need to know why it happened in the first place.
Since many biotech and pharma companies are pre-revenue and are still developing drugs, a discount to cash is normal for some companies.
Not every company’s research and development pay off in the end. So the market prices in a chance of failure.
But when the “number of stocks below cash” indicator is this high, it signals that the market sentiment is overly bearish.
This should have traders excited, because when this has happened before it has actually been extremely bullish.
When the indicator sits above 12%, the industry usually has a strong next three months.
Between 2018 and 2020, the indicator surpassed 12% nine times.
The industry finished the next three months higher 78% of the time, with a 13% average gain.
When Biotech and Pharma Companies Trade 12% Below Cash
I don’t expect this time to be any different.
Add Exposure to Biotech and Pharma Stocks Now
There hasn’t been a specific event or trend that would hinder biotech and pharma companies’ progress.
So I’d take advantage of the bearish sentiment and add some exposure to drug stocks before the market turns around.
Over the next few quarters, there are several catalysts I’m watching that could send biotech and pharma stocks higher.
I like to call these Profit Points.
We’ll have more info on these exciting opportunities in Winning Investor Daily over the next couple of weeks.
Research Analyst, Strategic Fortunes
From open till noon Eastern time.
Mullen Automotive Inc. (Nasdaq: MULN) is an electric vehicle maker that is up 36% this morning. The stock is continuing its upward momentum from Friday after it was featured in a few news outlets highlighting its progress toward its electric crossover and solid-state battery technology.
Anaplan Inc. (NYSE: PLAN) provides a cloud-based connected planning platform to connect organizations and people. The stock jumped 27% on the news that private equity firm Thoma Bravo has agreed to buy the company in a deal worth $10.7 billion.
Alleghany Corp. (NYSE: Y) provides property and casualty reinsurance and insurance products internationally. The stock is up 24% after Berkshire Hathaway signed an agreement to acquire the company for $11.6 billion.
Vinco Ventures Inc. (Nasdaq: BBIG) is a consumer products and digital marketing company that is up 21% today. There is no company specific news; rather, it is up on renewed interest from retail traders who see it as a potential short-squeeze target.
Assembly Biosciences Inc. (Nasdaq: ASMB) discovers and develops therapeutic candidates for the treatment of hepatitis B virus and other viral infections. It is up 20% after it announced the introduction of a new research program focused on a novel, oral small-molecule drug to inhibit entry of hepatitis B and hepatitis delta virus.
Sera Prognostics Inc. (Nasdaq: SERA) discovers and develops biomarker tests for the early prediction of preterm birth risk and other complications of pregnancy. The stock is up 18% after the company released positive data from a study where protein biomarkers were used to predict preeclampsia.
MarketWise Inc. (Nasdaq: MKTW) operates a multibrand platform of subscription businesses that provides financial research, software, education and tools for investors. The stock is up 17% as it recovers from a low last week following fourth-quarter earnings and a price target cut from UBS.
Cognyte Software Ltd. (Nasdaq: CGNT) provides security analytics software to governments and enterprises worldwide. The stock is up 16% after analysts at Stifel reiterated their buy rating on the stock.
SecureWorks Corp. (Nasdaq: SCWX) provides technology-driven information security solutions. It is up 13% on a bounce-back after sinking on Friday when it reported fourth-quarter results that missed revenue and guidance expectations.
Century Aluminum Co. (Nasdaq: CENX) produces standard-grade and value-added primary aluminum products. It is one of the many aluminum stocks that is up 12% today with the rise in aluminum prices following Australia’s aluminum export ban to Russia.