Even in the midst of a bullish market trend, some stocks are going to fall. That’s just a fact of the markets, and the risk in stock investing. But – just because a stock falls, doesn’t mean investors should avoid it. In fact, a falling price can be a strong signal for investors start checking it out more closely, to find out if the stock is fundamentally unsound or simply facing a transient headwind.
One source investors can turn to for that signal is the world of corporate insiders. These are the company officers with the boss’s eye view of what’s going in with the corporations in their charge – and they are responsible to Boards and shareholders for bringing in profits and returns, an important factor, for it puts the profit motive to work to everyone’s advantage. Insiders don’t trade lightly, and when they start making ‘informative’ transactions, investors should pay close attention.
We can track the insiders’ trades through their SEC filings, but TipRanks makes it even easier, gathering and collating insider trading data to bring insider trading details to your fingertips. Using the tool, we’ve looked up the latest info on two stocks that have shown an interesting profile: a low share price after a sustained drop, a Strong Buy consensus rating, and recent ‘Informative Buys’ from corporate insiders. Let’s take a closer look.
AbCellera Biologics (ABCL)
The first stock we’re looking at is AbCellera Biologics, a leader in human antibody research. This field is full of possibilities for biotech and medical research, as human antibodies, derived from the immune system’s natural function, have enormous potential as sources of new therapeutic agents for treating a wide range of disease conditions. AbCellera has a proprietary tech platform, using AI and integrating engineering, microfluidics, single-cell analysis – and plenty more slightly arcane technologies – to discover and develop new products.
This company is moving to a partnership model, developing research tracks with a dozen or more of the Big Pharma giants. AbCellera has the technology to investigate new therapeutics; the partners have funding, the facilities, and the marketing networks; in concert, these combos should work on each other’s strengths. The shift to partnerships is partly responsible for the lower revenues the company has seen in the past two quarters. These agreements tend to back-load the profits, which are based on royalty agreements, while under the previous fee-for-service system, payments to AbCellera were front-loaded.
That business shift, however, is not the only factor buffeting AbCellera’s current situation. The company went public last December, to great fanfare and over $555 million in gross proceeds – but the stock is down 75% since then. Declining revenues are part of that story – but a more important factor was Merck’s release earlier this year of molnupiravir. This drug showed promise in the treatment of COVID-19, cutting hospitalizations by half. AbCellera, meantime, was heavily invested, along with Eli Lily, in the development of bamlanivimab, and antibody treatment for COVID. Merck’s drug release tended to push competitors’ stocks down from its release in October, a situation that has not yet resolved.
In a sign of confidence, AbCellera has seen numerous insider buys recently. The three largest come from CEO Carl Hansen, CFO Andrew Booth, and Andrew Lo, of the Board of Directors. They spent over the past month, $606,150, $993,130, and $1,218,871, respectively. Collectively, these purchases, and several other smaller insider buys, show a vote of confidence in the company’s future.
That confidence is shared by 5-star analyst Do Kim of Piper Sandler. He is bullish on AbCellera, but counsels patience, writing, “We take a longer-term investment horizon on ABCL, as we expect revenues to ramp up quickly when partnered programs advance to later stages and collaborative payments accumulate and become more meaningful.”
Elaborating somewhat, Kim adds, “We expect nearterm revenue mix to primarily consist of research fees and declining COVID-19 royalties. We remind investors that research fees reflect the minimal upfront cost for partnered programs and b-mab serves as strong validation of platform capabilities. We expect more meaningful revenue streams from milestones which accumulate with more program starts and grows larger as programs advance into later stages. While timing of payments are difficult to predict, we believe program starts are a good measure for future revenues.”
In line with these comments, Kim rates ABCL an Overweight (i.e. Buy), and his $33 price target implies a 12-month gain of ~135%. (To watch Kim’s track record, click here)
Overall, all 4 of the recent analyst reviews on this stock are positive, making the Strong Buy consensus unanimous. The average price target is $35.33, suggesting a 151% upside from the current trading price of $14.08. (See ABCL stock forecast on TipRanks)
Zai Lab (ZLAB)
Next up is Zai Lab, a biotech company based in China. This medical research firm has taken a ‘scattergun’ approach to the research pipeline, and over 20 different drug candidates under investigation. The research tracks are looking at treatments for a wide range of issues, from cancer to neurology and autoimmune disorders to infectious diseases. Most of the tracks are in various states of clinical trials, but some are still in preclinical testing and a few are being marketed in China.
The drugs currently being marketed in China are Zejula, Optune, and Qinlock. The first is a treatment for a variety of solid tumor types, such as ovarian and small cell lung cancer; the second is a new type of treatment for the inhibition of tumor growth, using electric fields tuned to specific frequencies; and the third is a tyrosine kinase inhibitor the treatment of advanced gastrointestinal stomal tumors (GIST). Together, these products generated $43.1 million in revenue in 3Q21. This was nearly triple the $14.7 million revenue recorded in the year-ago quarter. Zejula led the way, bringing in over $28 million.
The company’s extensive pipeline comes with a cost – R&D expenses are high, at $55.1 million in the third quarter. Taken with the administrative expense, Zai has a quarterly overhead of at least $114 million. However, the company is flush with cash, reporting $1.56 billion in liquid assets as of September 30. This is up 32% from the $1.18 billion reported at the end of 2020.
Despite the company’s strengths, the stock is down over the past year. ZLAB shares peaked in January of this year, and are down 65% since then. And that brings us to the informative insider buy.
On the insider front, Peter Wirth, member of the Board of Directors, bought a tranche of 4,000 shares worth of ZLAB just this past week. He paid approximately $285,440 for the shares.
This stock as has its fans among the analysts as well. Jefferies analyst Michael Yee rates ZLAB a Buy, and his $225 price target indicates room for a 240% upside in the coming 12 months. (To watch Yee’s track record, click here)
Backing his stance, Yee wrote, “China volatility seems mostly non-fundamental to biotech but we acknowledge recent investor worries and nervousness around exposure to the region. That said, ZLAB stock has come down significantly from highs and the setup could be due for a strong bounce in 2022 as China commentary ‘settles down’ and investors revisit the China thesis. The co says local checks and ‘feet on the ground’ suggest no real issues on the horizon and more deals in 2022 are likely.”
Overall, Wall Street is bullish here, as the stock has a Strong Buy consensus rating. That is based on 5 recent reviews, breaking down 4 to 1 in favor of Buy over Hold. The shares are trading for $66.29 and their $203.12 average price target suggests a one-year upside of 207%. (See ZLAB stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.