4 Biotech Stocks Could Have Big Upside Before Russell Index Changes

By Lee Jackson Updated May 12, 10:08AM EDT · Published May 12, 8:20AM EDT

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Typically when we cover index rebalancing or reconstitutions, they are happening within a few days of when our story is posted. Investors may have a huge head start as, even though the Russell Indexes will not reconstitute until late in June, there are some solid candidates that may be offering investors big gains now.

A new report from Credit Suisse points out that stocks that are moving up the market cap ladder from the Russell 2000 to the Russell 1000 tend to outperform ahead of the changes and underperform in the six months after. They also expect that biotech stocks will see the most promotions. We highlight the four biotech and health care stocks that Credit Suisse feels will be moving on up.

DexCom

DexCom Inc. (NASDAQ: DXCM) is a medical device company headquartered in San Diego, Calif., that is developing and marketing continuous glucose monitoring systems for ambulatory use by patients and by health care providers in the hospital. The company has made its G4 PLATINUM CGM System with Share app available on the Apple Watch.

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Being one of the first companies in the category to be approved by the U.S. Food and Drug Administration (FDA), DexCom’s app will allow diabetic patients to track their blood glucose statistics right from their wrist. The app will also allow them to share this information with caregivers, parents, doctors or other authorized individuals and send an alert when the glucose levels are beyond the normal range.

The Thomson/First Call consensus price target for the stock is $70.36. Shares closed on Monday at $67.60.

Isis Pharmaceuticals

Isis Pharmaceuticals Inc. (NASDAQ: ISIS) engages in the discovery and development of antisense drugs using a novel drug discovery platform. The company’s flagship product includes the Kynamro injection, which is an apo-B synthesis inhibitor for patients with homozygous familial hypercholesterolemia, and for the reduction of low-density lipoprotein cholesterol. It also has a pipeline of 38 drugs in development for the treatment of various diseases, including cardiovascular and metabolic diseases; severe and rare diseases, which include neurological disorders; and cancer.

The company recently agreed to license its developmental blood-thinning drug to a unit of Bayer. It expects an upfront payment of $100 million on the drug, called ISIS-FRXI, and an additional $55 million following a Phase 2 study in patients with compromised kidney function.

The consensus price target is $68.11, and the shares ended trading on Monday at $62.12.

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Opko Health

This company is a multinational biopharmaceutical and diagnostics participant. Opko Health Inc. (NYSE: OPK) seeks to establish industry leading positions in large, rapidly growing markets by leveraging its discovery, development and commercialization expertise and novel and proprietary technologies. Shareholders will be glad to know that the chairman of the board has consistently been a buyer of the stock.

The company announced last week the acquisition of EirGen Pharma, a growing, profitable and cash flow positive specialty pharmaceutical company focused on the development and commercial supply of high potency, high barrier to entry, pharmaceutical products for sale in the United States, Canada, Japan, Australia, most European countries, and more than 40 others around the world.

The company reported less than stellar earnings this week, and investors may have a good chance to buy shares at a discounted price. The consensus price target is $14.88, and shares closed on Monday at $14.30.

Puma Biotechnology

This stock has had a huge run over the past year. Puma Biotechnology Inc. (NASDAQ: PBYI) is a development stage biopharmaceutical company that acquires and develops innovative products for the treatment of various forms of cancer. It focuses on in-licensing drug candidates that are undergoing or have already completed initial clinical testing for the treatment of cancer and then seeks to further develop those drug candidates for commercial use.

The company is initially focused on the development of PB272 (oral neratinib), a potent irreversible tyrosine kinase inhibitor, for the treatment of patients with HER2-positive breast cancer and patients with non-small cell lung cancer, breast cancer and other solid tumors that have a HER2 mutation. A cocktail of drugs containing Puma’s neratinib given before surgery eliminated evidence of cancer in the breast and lymph nodes in 55.6% of women, compared with 32.6% of those given standard drug therapy in data released last year.

The consensus price target is a whopping $276.80. The stock closed Monday at $200.98 per share.

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It is important to remember that these are all very aggressive stocks and only suitable for high risk-tolerant accounts. With that in mind, if history is any guide, investors that buy these stocks now and sell before the actual Russell changes may be well rewarded.

About the Author Lee Jackson →

Lee Jackson has covered Wall Street analysts' equity and debt research and equity strategy daily for 24/7 Wall St. since 2012. His broad and diverse career, which included a stint as the creative services director at the NBC affiliate in Austin, Texas, gives him unique insight into the financial industry and world.

Lee Jackson's journey in the financial industry spans over 30 years, with nearly two decades as an institutional equity salesperson at Bear Stearns, Lehman Brothers, and Morgan Stanley. His career was marked by his presence on the sell side during pivotal Wall Street events, from the dot.com rise and bubble to the Long Term Capital Management debacle, 9/11, and the Great Recession of 2008. This is a testament to his resilience and adaptability in the face of market volatility.

Lee Jackson’s practical financial industry experience, acquired from a career at some of the biggest banks and brokerage firms, is complemented by a lifetime of writing on various platforms. This unique combination allows him to shed light on the intricacies and workings of Wall Street in a way that only someone with deep insider experience and knowledge can. Moreover, his extensive network across Wall Street continues to provide direct access for him and 24/7 Wall St., a privilege few firms enjoy.

Since 2012, Jackson’s work for 24/7 Wall St. has been featured in Barron’s, Yahoo Finance, MarketWatch, Business Insider, TradingView, Real Money, The Street, Seeking Alpha, Benzinga, and other media outlets. He attended the prestigious Cranbrook Schools in Bloomfield Hills, Michigan, and has a degree in broadcasting from the Specs Howard School of Media Arts.