I'm Adding This Biotech to My Shopping List as the Market Bounce Looks Suspect

A funny thing happened to the equity markets over the past two weeks. After crashing following "Liberation Day" on April 2, stocks have staged a most unexpected and substantial rebound. That said, the rally feels a bit long in the tooth. The last two weeks could very well be nothing more than a bear market rally in hindsight.

Before the rally, I deployed a decent chunk of "dry powder" back into the market during the steep decline in the first half of April. This reduced my allocation within my portfolio in short-term Treasuries from roughly a third to a quarter. I also increased my allocation to healthcare names via covered-call orders during the recent decline, and I'm now adding another to my watch-list, as I'll explain further down. 

There are reasonable valuations here and the sector should be less impacted by tariffs and changes to trade policies than many other sectors of the economy. I am keeping to profitable names with rock-solid balance sheets. I highlighted many of these names within my columns in April such as Exelixis EXEL and CorMedix Inc. CRMD. Both stocks have rebounded nicely over the past couple of weeks.

I am now adding Kiniksa Pharmaceuticals KNSA to my shopping list for the next inevitable pullback in the markets. The company’s franchise drug Arcalyst, which Kinisksa licensed from Regeneron Pharmaceuticals REGN, was approved in 2021 to treat recurrent pericarditis, a type of swelling of the tissue surrounding the heart, which often leads to chest pain. Kinisksa has overseen an effective marketing rollout for this therapy, which should do approximately $600 million in net product revenues in fiscal 2025.

Kiniksa has another interesting candidate in mid-stage development and has approximately $270 million in net cash on its balance sheet. The company is profitable and has an approximate market cap of $2 billion. The shares have rallied strongly into the high $20s following a better-than-expected first-quarter earnings result that came out last week. Management also boosted full-year sales guidance. If the stock comes back down to the mid-$20s when the overall market finally stops rallying, I will be establishing an initial position in this name.

And that is part of my game plan as equities head further into overbought territory. But I want to emphasize that I am doing everything incrementally. I don’t have a good feel for the markets right now and which way the economy goes from here seems like a coin flip. The rally has come despite a consistent litany of calls for a recession from the financial punditry because of tariffs and the upending of long-standing rules governing global trade. They are bound to be right one day, especially if new trade deals don’t come to fruition in the coming months. For now, investors are happy with the recent reset in the markets, which has brought the indexes back up to the levels they were to start the month of April. The S&P 500 just logged its longest daily winning streak in 21 years. But neither the markets nor the economy, however, is out of the woods yet. 

At the time of publication, Jensen was long CRMD and EXEL