Geron: Small-Cap for Contrarians

12/20/2013 7:00 am EST


Small-cap stocks have been outpacing their mid- and large-cap peers for some time now; here's a look at a biopharmaceutical concern that could offer up the potential for an affordable contrarian play, suggests Karee Venema of Schaeffer Investment Research.

Geron Corporation (GERN), with a market capitalization of $622.22 million, has had quite a run on the charts in 2013, with the shares up 231% to trade at $4.67. As a point of comparison, the broader Nasdaq Composite has tacked on about 33% in the same time frame.

This upward momentum has been highlighted by the equity's ten-week moving average, which has not only given GERN a lift, but also provided a foothold during the stock's most recent pullback.

Despite this technical tenacity, sentiment around the Street has tended toward the bearish side. In the options pits, Geron's 50-day International Securities Exchange, Chicago Board Options Exchange, and NASDAQ OMX PHLX put/call volume ratio of 0.23 ranks in the 92nd percentile of its annual range.

Simply stated, puts have been bought to open over calls with more rapidity just 8% of the time within the past year.

Elsewhere, short interest soared 18.9% over the past two reporting periods, and now accounts for a healthy 5% of GERN's available float. Meanwhile, the four analysts covering the stock have split the pole, doling out two buy or better ratings, compared to two tepid holds.

From a contrarian perspective, an unwinding of these bearish bets, or a round of upgrades, could assist GERN in its trek up the charts. In fact, Needham recently raised its outlook on GERN to buy from hold, following positive statements from its most recent review of imetelstat study results.

One final note—now appears to be an opportune time to place bets on Geron at a bargain level. The stock's Schaeffer's Volatility Index of 105% rests just 12 percentage points from an annual low, implying near-term options are inexpensive, from a volatility perspective.

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