Pharma Trio for Q2 Outperformance

04/27/2015 8:00 am EST


What's next for the second quarter? I decided to take a look at stocks that have historically outperformed during the second quarter of the calendar year, explains Alex Eppstein in Schaeffer's Investment Research.

With the help of senior quantitative analyst Rocky White,we isolated stocks which were positive during the second quarter at least 80% of the time over the last ten years.

Curiously, a number of them belonged to the pharmaceutical sector. So I decided to a dig a little deeper there and eventually honed in on three pharma stocks.

Celgene (CELG)

Celgene has been a technical beast over the last year, surging more than 55% to trade at $114.57. Late last month, the shares hit a record high following some positive analyst attention. Looking ahead, the stock has been positive in eight of the past ten second quarters, averaging a gain of 4.2%.

In spite of these standout technicals, traders have been buying to open CELG puts over calls at a much faster-than-usual pace.

Echoing this, CELG's Schaeffer's put/call open interest ratio (SOIR) of 1.16 outstrips 88% of comparable readings from the previous 12 months.

A capitulation among option skeptics could spell additional upside for the security in the months ahead.

GlaxoSmithKline plc (GSK)

GlaxoSmithKline has had a solid 2015, advancing more than 9% to perch at $46.69. The stock got a boost from a positive note from Cowen, which said the pharmaceutical firm's shingles vaccine could be superior to Zostavax from Merck (MRK).

In terms of second-quarter performance, GSK has been positive in eight of the previous ten years, advancing 3.3%, on average. Should this trend continue, an unwinding of pessimism throughout the Street could result in tailwinds for GSK.

Three-quarters of analysts covering the stock rate it a hold or worse, setting the stage for a round of upgrades.

Also, the shares' average 12-month price target of $46.36 is below current trading levels, hinting at the possibility of additional price-target increases.

Vertex Pharmaceuticals (VRTX)

Vertex has been a long-term outperformer, as well, surging 61% year-over-year. If that's not enough, the shares have been positive in nine of the last ten second quarters, boasting a typical three-month gain of 25.2%.

Nevertheless, there's plenty of negativity toward VRTX on the Street. Half of the analysts tracking the shares rate them a tepid hold, leaving the door wide open for potential upgrades.

Also, the stock's 10-day put/call volume ratio of 1.09 outranks 82% of comparable readings from the past 12 months. Should the weaker bearish hands begin to hit the exits, it could add fuel to VRTX's fire.

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