U.S. markets will be shuttered for Memorial Day on Monday, resulting in a four-day trading week for Wall Street. In recent years, one sector has significantly outperformed during short trading weeks: drug stocks, as represented by the SPDR S&P Biotech ETF (XBI). Below, we’ll take a look at XBI, as well as biotech stocks Puma Biotechnology Inc (NASDAQ:PBYI) and Amicus Therapeutics, Inc. (NASDAQ:FOLD), which top the list of the 25 best stocks to own next week.
Other ETFs Don’t Hold a Candle to XBI
Since 2010, the XBI exchange-traded fund (ETF) has been the best during short weeks, according to data from Schaeffer’s Senior Quantitative Analyst Rocky White. In fact, the SPDR S&P Biotech ETF has ended short weeks in the black 72.7% of the time, with an average return of 1.33%. That’s nearly double the second-best ETF by average return — the First Trust Dow Jones Internet Index Fund (FDN).
XBI has been in a channel of higher highs and lows since February 2016, and sports a year-over-year gain of 25.4%. Speculators looking to place short-term bets on XBI can do so at a relative discount; the ETF’s Schaeffer’s Volatility Index (SVI) of 21% is lower than 96% of all other readings from the past year, pointing to attractively priced near-term options. Plus, XBI sports a Schaeffer’s Volatility Scorecard (SVS) of 66, suggesting the biotech ETF has exceeded options traders’ volatility expectations during the past year.
Drug Stocks Outperform In Short Weeks
Digging into the specific stocks to watch next week, drug/biotech stocks dominate the list, which White compiled by looking at optionable securities that trade at least a million shares per day and are above $7. In fact, the top four stocks on the list fall under the “drugs” or “biomedics” umbrellas.
PBYI Stock Could Stay Red-Hot
PBYI has averaged a return of 3.07% in short weeks, going back to 2010, with a 61.3% win rate. The stock has been red-hot lately, more than doubling in the past week to hit an annual high of $80 today, after a Food and Drug Administration (FDA) panel backed Puma Biotechnology’s breast cancer drug. This morning, analysts are applauding PBYI stock, which earned an upgrade to “outperform” from “market perform” at Cowen, and price-target hikes from three other brokerage firms. Citigroup’s new target of $105 was the most ambitious, representing a 32% premium to Puma’s current price.
Some traders may be concerned about PBYI being overbought, as indicated by the stock’s 14-day Relative Strength Index (RSI) of 87. However, there’s plenty of pessimism that could unwind and drive Puma Biotechnology shares even higher. Short interest represents nearly one-third of PBYI’s total available float, or about eight sessions’ worth of pent-up buying demand, at the biotech’s average pace of trading. Further, options buyers have been more bearish than usual; the stock’s 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) of 3.03 is higher than 89% of all other readings from the past year.
FOLD Stock Tops the List
Amicus Therapeutics stock is at the top of the list, averaging the best return in short weeks since 2010: 3.74%. FOLD stock has ended these weeks in the black 60.6% of the time, per White’s data. The shares have nearly doubled since touching an annual low of $4.41 in mid-December, last seen flirting with year-to-date highs in the $8.70 vicinity.
As with PBYI, Amicus Therapeutics stock could also benefit from a mass exodus of bears. Short interest accounts for more than a quarter of FOLD’s total available float, and it would take a whopping 27 sessions to repurchase these pessimistic positions, at the equity’s average daily trading volume. That’s plenty of fuel for a short squeeze to add fuel to the drugmaker’s fire.