The biotech business is shrouded with uncertainty -- from awaiting FDA decisions or the results of a clinical trial to determining whether the company can even capitalize on its latest scientific discovery -- and this uncertainty is reflected in how quickly investors change their minds about biotech firms.
Because of how easily the day-to-day changes can drastically affect stock prices, many investors consider this industry too difficult to track. We can therefore assume that qualified investors who brave the sector are keeping a very close watch on it.
Applying short-seller trends
Interested to know what informed investors are thinking about a stock? One of the most telling indicators is shares shorted. Since shorting indicates a bearish outlook, stocks with increasing short-selling are being given a more bearish outlook by traders.
Because short-selling requires borrowing, an individual or institution must meet several requirements (including background checks) to engage in short-selling. Thus, short-sellers are generally more sophisticated than the average investor.
For this reason, they are often referred to as "Smart Money" investors.
The (bullish) list
We ran a screen on the biotech industry for stocks seeing the most significant decreases in shares shorted month-over-month, indicating that short-sellers are more bullish about these names than before.
Do you agree with short-sellers' optimism for these names? Use this list as a starting point for your own analysis.
List sorted by decrease in shares shorted. (Click here to access free, interactive tools to analyze these ideas.)
List compiled by Alexander Crawford:
1. Genetic Technologies (NAS: GENE) : Engages in the provision of genetic testing services primarily in Australia. Market cap of $53.83M. Shares shorted decreased from 179.26K to 41.61K month-over-month, a change representing 2.11% of the company's 6.51M share float.
2. Sangamo Biosciences (NAS: SGMO) : Engages in the research, development, and commercialization of zinc finger DNA-binding proteins (ZFPs) for gene regulation and gene modification in the United States. Market cap of $147.97M. Shares shorted decreased from 5.99M to 5.12M month-over-month, a change representing 1.75% of the company's 49.82M share float.
3. Theravance (NAS: THRX) : Engages in the discovery, development, and commercialization of small molecule medicines for various therapeutic areas, including respiratory disease, bacterial infections, and central nervous system (CNS)/pain. Market cap of $1.94B. Shares shorted decreased from 6.81M to 6.38M month-over-month, a change representing 1.19% of the company's 36.24M share float.
4. Charles River Laboratories International (NYS: CRL) : Provides research models and laboratory animal support expertise to help its global partners advance their research and drug development efforts. Market cap of $1.40B. Shares shorted decreased from 1.47M to 1.10M month-over-month, a change representing 0.76% of the company's 48.59M share float.
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman and Alexander Crawford do not own any of the shares mentioned above. Short data sourced from Yahoo! Finance.
At the time thisarticle was published The Motley Fool owns shares of Charles River Laboratories International. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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