When indices like the S&P 500 or the Russell 2000 rebalance at the end of quarters, there is often high volatility in stocks that need to be bought or sold, depending on the new allocation guidelines. However, the major stock indices are not that only financial assets that have to rebalance, the huge exchange traded fund (ETF) sector also does rebalances, and a big one on the close Wednesday could cause some stocks to shoot higher or lower.
A note from the analysts at Cowen highlights the large ETF rebalance at the close Wednesday from the PowerShares “dynamic” family of ETFs. Owned by investment behemoth Invesco Ltd. (NYSE: IVZ), the PowerShares family is one of the largest and most widely owned group of ETFs.
The Cowen report zeroes in on the most illiquid stocks that will be traded as the 15 ETFs rebalance. We then screened for the stocks with the highest number of shares being bought. This combination of buying and low liquidity may push some stocks substantially higher.
Auxilium Pharmaceuticals Inc. (NASDAQ: AUXL) has been cut almost in half since early March and is down 28% since management lowered guidance for 2014. Management revised its 2014 revenue guidance down by $70 million to a range of $380 million to $420 million, primarily reflecting lower-than-anticipated Testim sales. Cowen says that 521,900 shares will be bought on the close Wednesday. The Thomson/First Call consensus price for the stock is $27.33. Shares closed trading on Tuesday at $19.06.
BioDelivery Sciences International Inc. (NASDAQ: BDSI) announced positive data for BEMA buprenorphine in opioid-naïve patients met expectations earlier this year, and the stock has stayed on many biotech investors’ radar screens. The company is hosting an event this week where it will discuss the commercialization and launch plan for Bunavail and provide updates on the BEMA Buprenorphine chronic pain and Clonidine Topical Gel programs. Cowen anticipates a whopping 2,418,800 shares will be bought as the ETFs rebalance, and that represents 210% of the 10-day average trading volume. The consensus price target is $21.14. The stock closed Tuesday at $16.65 a share.
ImmunoGen Inc. (NASDAQ: IMGN) is focusing on breast cancer treatment with its targeted-antibody payload, or TAP, technology, which allows chemotherapy toxins to hop aboard an antibody and be released when they come into contact with a targeted cancer cell that exhibits a specific protein signature. The end result is the destruction of cancerous cells without harming healthy cells that don’t possess this protein signature. The stock will see a large buy of 937,100 shares, which represents 160% of the 10-day average trading volume. The consensus price target is $15.27. The stock closed Tuesday at $12.20.
Novavax Inc. (NASDAQ: NVAX) was on the 24/7 Wall Street radar earlier this year, and it was top stock pick at many of the firms we cover for 2014. This clinical-stage biopharmaceutical company uses recombinant nanoparticle technology to develop vaccines for a wide variety of infectious diseases. The company presently has six vaccine candidates undergoing clinical trials, with a seventh (rabies) being readied for a Phase 1 study later this year. The stock will see some serious buying on the close, to the tune of 845,500 shares, which is a 39% increase in the average trading volume over the past 10 days. The consensus price target for the stock is $10.41. Shares closed Tuesday at $4.88.
Repligen Corp. (NASDAQ: RGEN) is a life sciences company focused on the development and commercialization of high-value consumable products used in the process of manufacturing biological drugs. The company record product sales in the second quarter and appears to be poised for a strong finish to 2014. The stock will see buying of 581,100 shares on the close, which represents a 193% increase over the 10-day volume average. The consensus price target is $24.33. Shares closed Tuesday at $19.80.
Trading on a binary event like a rebalance is very aggressive, as is owning smaller biotech stocks. However, investors with a high risk tolerance looking to own biotech stock may want to consider this a chance to get in before a possible move higher.