Biotech stocks ALXN, REGN, and CELG tend to outperform in July and beyond
Biotech stocks have been hot lately, with the SPDR S&P Biotech ETF (XBI) flirting with annual highs. What's more, the exchange-traded fund (ETF) is one of the best to own in the month of July, historically. Below, we'll take a look at the sectors and ETFs to watch next month, as well as the 25 best stocks to own during the dog days of summer, including healthcare stocks Alexion Pharmaceuticals, Inc. (NASDAQ:ALXN), Regeneron Pharmaceuticals Inc (NASDAQ:REGN), and Celgene Corporation (NASDAQ:CELG). What's more, ALXN, REGN, and CELG could be ripe for short-term options-buying opportunities.
Best ETFs of July
July is the best month of the year for XBI, historically. Since inception, the ETF has averaged a monthly gain of 5.4%, according to recent data from Schaeffer's Quantitative Analyst Chris Prybal. Going back 10 years, XBI has been the cream of the crop, as far as average monthly return, gaining 6.15%, per data from Schaeffer's Senior Quantitative Analyst Rocky White. Further, XBI has ended the month of July in the black 70% of the time in the past decade.
The Health Care Select Sector SPDR Fund (XLV) is also one to watch over the next month. The fund has ended the month higher 80% of the time over the last 10 years, placing it near the very top of the list. However, XLV's average monthly return of 1.91% pales in comparison to XBI's. Plus, with the fate of the Senate's healthcare bill still undetermined, XLV traders may want to exercise caution in the near term.
Best Stocks to Own in July, 3Q, and 2H
Alexion Pharmaceuticals stock is the only S&P 500 Index (SPX) member to boast a 100% win rate in July, going back 10 years, per data from White. Further, ALXN stock sports the highest average return, at a whopping 14.52%. Regeneron stock sports the second-best average monthly return, at 13.67%, with a win rate of 80%. Meanwhile, Celgene stock is among just a handful of stocks with a 90% win rate in July, averaging a monthly return of 11.06%.
Further, ALXN, REGN, and CELG are all among the best stocks to own during the third quarter and second half of the year, historically. ALXN averages a third-quarter gain of 16.2%, with a win rate of 90% -- only one of two SPX stocks that can say that. In the second half of the year, Alexion Pharmaceuticals shares average a gain of 26.17%, and have ended higher in eight of the last 10 years.
REGN boasts the best return of all SPX stocks during the third quarter, averaging a gain of 19.03%, and higher 80% of the time. The stock's average second-half gain of 27.06% is the second-best of S&P 500 members, with Regeneron shares sporting a second-half win rate of 90% over the past decade.
CELG stock has averaged a third-quarter gain of 11.7%, and a second-half gain of 12.98%. Celgene shares have ended both the third quarter and the second half of the year on a positive note 80% of the time.
ALXN, REGN, CELG Options at a Bargain
Since peaking in mid-2015, Alexion Pharmaceuticals stock has been in a channel of lower highs and lows, touching a three-year nadir of $96.18 in late May. However, ALXN is up 28% so far in June, last seen trading at $125.82. Traders expecting another red-hot July for Alexion shares can scoop up near-term options at discount, too. The stock's Schaeffer's Volatility Index (SVI) of 34% is higher than just 7% of all other readings from the past year, suggesting ALXN's short-term options are attractively priced, from a historical volatility standpoint.
REGN has skyrocketed more than 38% so far in 2017, notching a new annual high of $543.55 just last week, despite escalating competition concerns for Regeneron's Eylea. Leerink expects even higher highs for REGN, and today lifted its price target to $573 from $493. There's still plenty of room on the bullish bandwagon, though, as 10 of 19 analysts maintain tepid "hold" ratings.
Meanwhile, traders anticipating another second-half run higher for Regeneron stock can scoop up short-term options at a relative bargain, going by REGN's SVI of 21% -- in just the 23rd percentile of its annual range. Plus, REGN stock sports a Schaeffer's Volatility Scorecard (SVS) of 72, indicating the shares have exceeded options traders' volatility expectations in the past year.
Celgene stock has rallied more than 40% in the past year, and touched an an annual peak of $135.18 on June 22. In fact, CELG stock last seek rallied 9.8%, marking its best week since November. CELG shares have been in a channel of higher lows and highs since February 2016, and are now encroaching on their all-time highs in the $135-$140 neighborhood. Options traders expecting Celgene to extend its trend of outperforming in July can buy near-term options at a relative discount, as CELG's SVI of 33% is lower than 76% of all others from the past year, and the stock's SVS sits at a healthy 68, pointing to Celgene's ability to make bigger-than-expected moves on the charts.