Do the Shorts Know Something You Don't?
Apr 17th 2012 10:05PM
Updated Apr 17th 2012 10:06PM
Since everyone loves a winner, it's reasonable to assume that everyone hates a loser -- everyone but short sellers, at least. These contrarian investors bet that hot stocks are primed to fall, aiming to turn their pessimism into potential profits.
These companies had some of the largest percentage increases in shares short. Combining that with the collective intelligence of Motley Fool CAPS, we'll see which of these companies Fools believe have the power to make short work of short-sellers.
CAPS Rating (out of 5)
Antares Pharmaceuticals (ASE: AIS)
|Threshold Pharmaceuticals (NAS: THLD)||4.3||3.2||36.5%||10.3%||**|
Source: wsj.com. Share counts in millions.
Of course, this isn't a list of stocks to buy -- or short! These stocks could have serious problems that warrant their short interest, but they might also be stricken by short-term troubles. Only Foolish due diligence will tell you for certain; our 180,000-strong CAPS community offers just such a good place to start.
Gearing up for growth
The injectables market opportunity is huge, which is one of the reasons I'm bullish about Antares Pharmaceuticals and think the short sellers have this one wrong.
According to some analyst estimates, the global injectable-drug delivery market will grow at a better than 12% annual compounded rate through 2015, with the entire market for injectables estimated at more than $120 billion. Of that, just $11 billion is assigned to generics and, with all the branded drugs going off patent soon, should surge higher. Currently most of Antares' revenues come through Teva Pharmaceuticals (NAS: TEVA) , which is generally recognized as one of the biggest potential beneficiaries of the looming patent cliff.
Analysts anticipate that Antares will grow revenues nearly 50% this year ... and then they're really going to take off, surging 133% in 2013. Undergirding the injectables business is Antares' gel delivery system. The market misread the impact from BioSante Pharmaceutical's implosion last year, which gave investors a great buy-in point when Antares' shares sold off. But a deal with Watson Pharmaceuticals (NYS: WPI) for the treatment of overactive bladder, a condition that has an addressable market worth $2.1 billion and growing, should bolster sales going forward and highlight the potential of the delivery system.
I've rated Antares to outperform on CAPS, because I see this company as only just getting started, but I could see, as lnsksr does, that it would make for an attractive buyout candidate. Either way, I think its current share price is cheap, but tell me in the comments section whether you agree, and add the stock to your Watchlist to see whether the shorts get caught short with the bet against it.
Crossing the threshold
It's likely that short sellers were eyeing Threshold Pharmaceuticals for a pullback after its stock had raced ahead nearly 600% since the start of 2012, and its 30% drop since the beginning of April supported the shorts' hypothesis. Yet Threshold makes it seem as though this is just a pause before the next leg up.
The biotech focuses on novel treatments for cancer. It just earned a $20 million milestone payment from Merck KGaA for its results from a clinical trial related to pancreatic cancer. Earlier, it received FDA orphan drug recognition for its therapy TH-302, a drug for the treatment of soft tissue sarcoma.
And data has been particularly encouraging. Threshold combined TH-302 with Eli Lilly's (NYS: LLY) Gemzar to compare it with patients who took Gemzar alone, and nearly twice as many patients responded positively to the combination.
CAPS member jdill23 is one, however, who thought Threshold was overvalued, particularly citing its cash position, though that Merck payout will help strengthen it. While I find biotech investing often a crapshoot, thus far Threshold seems to be progressing fairly well, and with its pullback in price, I'm rating it to outperform the markets going forward.
Add your own thoughts on the Threshold Pharmaceuticals CAPS page or in the comments section below, and add its stock to the Fool's free portfolio tracker if you believe, as I do, that Threshold will cross over to a successful, profitable future.
Don't sell yourself short
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At the time this article was published Fool contributor Rich Duprey holds no position in any company mentioned. Check out his holdings and a short bio. Motley Fool newsletter services have recommended buying shares of Teva Pharmaceutical Industries. The Motley Fool has a disclosure policy. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.
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