Biotech stocks can sometimes soar on news that you’d expect would cause them to fall. Most of the time, though, they jump due to catalysts that are perfectly logical.
Both scenarios happened this week for three soaring biotech stocks. Here’s what lit a fire beneath these stocks — and whether they’re smart picks for investors now.
Best Undervalued Stocks To Watch For 2019: Eldorado Gold Corporation(EGO)
First thing first, let’s see how Eldorado Gold fared operationally in the past year or so.
|Gold production (in ounces)||292,971||312,299||89,374||$75,172 ounces|
|Revenue||$391.4 million||$432.7 million||$131.9 million||$111.9 million|
|Net profit/loss||($9.9 million)||($344.2 million)||$8.7 million||$6.8 million|
|AISC (per ounce)||$922||$900||$878||$791|
DATA SOURCE: ELDORADO GOLD FINANCIALS.
Eldorado Gold’s net loss may have shrunk last year, but its loss from continuing operations (the miner sold off Chinese assets in 2016) were still higher. The miner clearly has a problem at hand: rising AISC.
The market blew up and sent Eldorado shares tumbling 40.9% in October last year after the miner downgraded its fiscal 2017 production estimates for its flagship Kisladag mine at Turkey for the second time. Investors were already worried about a more serious concern: The Greek government’s initiation of arbitration proceedings against Eldorado to settle disputes over its key developing projects, including Skouries and Olympias mines.
The recent positive news from Greece and good Q1 numbers haven’t helped as investors are clearly running out of patience, more so as there’s been no update ever since the Greek government announced intentions to "reach an agreement in the coming weeks" more than a month ago. Meanwhile, Eldorado shares have already broken the crucial $1 mark at the time of this writing. If sustained, the company could be forced to go for a reverse stock split to stay listed on the New York Stock Exchange. That’s not a great sign, and until there’s substantive progress in Greece or some encouraging news coming out of Eldorado’s second-quarter report due in a month’s time, the stock remains a risky bet.
Best Undervalued Stocks To Watch For 2019: Harley-Davidson, Inc.(HOG)
While Harley-Davidson isn’t doing nearly as well as Disney, it’s still a stock that investors should consider. The motorcycle king retains a lot of potential despite going through a particularly rough patch nowadays.
The motorcycle market is shrinking, and Harley’s core middle-aged male buyers aren’t showing up at dealerships in nearly the numbers they used to. Buyers today are younger and more urban, more of them are female — and they are apparently looking elsewhere for their bikes. Harley sales fell 12% last quarter, and were down 7% in 2017.
Yet Harley has time. It still owns half the U.S. motorcycle market and has been able to preserve its profit margins by largely avoiding the discounting that other manufacturers do. It’s also trying to build bikes that appeal to this new demographic, like an electric motorcycle that is expected to be unveiled sometime next year.
There’s plenty of room to quibble about which policies it should follow to regain traction. But with such a big lead over the competition, it can afford to take the time to get it right. Trading as it does at only 12 times its free cash flow, it is a bargain stock that could roar ahead when it gets itself kick-started again.
Best Undervalued Stocks To Watch For 2019: Zafgen, Inc.(ZFGN)
Zafgen’s share price jumped 45% this week. There were three notable stories for the biotech this week — two of them that expectedly boosted the stock but one that surprisingly seemed to help.
On Monday, Zafgen held a conference call to discuss positive results from a phase 2 clinical study evaluating ZGN-1061 in treating type 2 diabetes. The company also reported encouraging nonclinical data for the drug in potentially treating NASH. In addition, Zafgen announced on Monday that it was being added to the Russell 3000 index.
The biotech decided to take advantage of its climbing share price that resulted from those announcements. On Wednesday, Zafgen stated that it would conduct a secondary stock offering. The next day, the company announced the price of that stock offering and that the gross proceeds were expected to total $60 million. Most stocks would fall on news of a stock offering since the issuance of new shares dilutes the value of existing shares. Zafgen, however, saw its stock price continue to rise — a good sign of investors’ bullishness about the company’s prospects.