Amid Sagging Market, I'm Picking Up These 3 Biotech Stocks

Equities have notably weakened over the past few weeks of trading. Most of the market has completely given up its post-election gains at this point as the yield on the 10-Year Treasury as continued to rise. This has disproportionately impacted some of the most interest-rate sensitive parts of the economy. The home building sector has sold off approximately 20% over the past six weeks of trading or so.

High beta areas of the market have also borne the brunt of the recent pullback. Quantum computing stocks have been beaten like a rented mule recently after being the hottest part of the market late in 2024. Biotech has also underperformed with the SPDR S&P Biotech exchange-traded fund XBI off just over 15% from its post-election recent highs. Not even the kickoff the huge JP Morgan Healthcare confab in San Francisco on Monday has improved sentiment. Nor did the several mergers across the industry that were announced on Monday, including the almost $15 billion purchase of Intra-Cellular Therapies, Inc. ITCI by Johnson & Johnson JNJ.

I have been holding my nose over the past week or so and I am adding to some of my small biotech holdings. I am doing this with two caveats. First, I am avoiding clinical stage names for now and sticking with companies with Food and Drug Administration-approved products on the market. I am also focusing on biotech stocks that have good liquidity in the options market. This allows me to accumulate my holdings via covered-call orders, providing an additional level of downside protection. 

 Here are three small stocks in the sector to which I have recently added exposure:

Iovance Biotherapeutics, Inc. IOVA has been cut in half from where it stood just over the election. The company's flagship product Amtagvi (lifileucel) became the only one-time, individualized T-cell therapy approved for the treatment of advanced melanoma when the FDA blessed the therapy early in 2024. The company easily beat third-quarter expectations when it posted earnings in November. Management also reaffirmed guidance. Revenues should nearly triple to $450 million or above in fiscal 2025. Analyst firm price targets issued so far this year are the low $20s. The stock currently goes for six bucks a share and seems substantially oversold.

Ardelyx, Inc. ARDX is another name I have added to. I just provided a deep dive on this biopharma name in December, so I will not rehash the story except to say management updated shareholders with preliminary fourth-quarter results and its initial read on fiscal 2025 on Monday. Both were nicely above expectations and starts the new year out on a high note. TD Cowen reissued its Buy rating on ARDX yesterday and I expect other analyst firms to follow after leadership’s encouraging first take of 2025.

Aurinia Pharmaceuticals Inc. AUPH is the final one on my list. The stock has lost approximately 30% of its value over the past five weeks as investor sentiment on the biotech sector has soured. I last covered Aurinia in December as well. I also added a few more shares in this name to my portfolio this week. The biopharma company has been a frequent focus of buyout speculation over the past year. 

In addition, a major stakeholder and beneficial owner in this small cap name added approximately $11 million to his holdings in Aurinia, and at significantly higher prices than current trading levels.  This is always a nice vote of confidence in the longer-term direction of the firm and its stock.

At the time of publication, Jensen was long ARDX, AUPH, IOVA, and XBI