Summer is moving fast and it’s time to consider one of the quirks of the stock market: We tend to see a bump in the fall, when the seasonal holidays end. This year, that seasonal bump has coincided with an economy reopening — assuming, of course, there are no new lockdowns due to COVID.
We can’t see into the future, but there are signals to look for that can provide some insight into where a particular stock is headed. A clear signal comes from company insiders, the officials whose functions — those responsible for corporate performance, share growth, and returns to investors and shareholders — demand success, and whose knowledge of the inner workings of the companies they serve points to future possibilities. .
From a legal point of view, insiders who trade knowledge, or act shamelessly, and disclosure rules by government regulators are not supposed to help keep the insiders honest. However, their honest stock trades can be very informative. These are the people with the deepest knowledge of certain stocks. So pay attention when they buy or sell, especially in bulk.
In this case we used the TipRanks Hot Insider Stocks tool to look up three stocks showing strong positive signs of insider trading. These are buy-rated stocks and show solid upside potential for the year ahead. Let’s take a closer look at that.
Chinook Therapeutics (WHEN)
We’ll start with Chinook, a clinical-stage biotech company with a focus on kidney disease – hence the ticker symbol. In particular, Chinook is developing precision medicines for rare, severe, chronic kidney diseases, which have both a lack of effective treatment and a clear path to new clinical opportunities. The potential is clear here; kidney disease is usually terminal without treatment, but with current technology, treatment pathways usually quickly lead to dialysis. This is both invasive and expensive (up to $120 billion a year) and Chinook’s goal is to bring effective medicinal treatments to the market in this area.
The company’s development pipeline is centered around Atrasentan, its most advanced drug candidate. Atrasentan was licensed by AbbVie in 2019. The drug is an endothelin receptor antagonist and is being investigated as a treatment for IgA nephropathy and proteinuric glomerular diseases. The first track is the subject of the Phase 3 ALIGN trial, enrolling patients, and the second is the subject of the Phase 2 AFFINITY trial, with interim data expected in 1H22.
Chinook’s second leading candidate is BION-1301, which is also being investigated as a treatment for IgA nephropathy. The drug candidate is an anti-APRIL monoclonal antibody and represents a second, and complementary, shot at target for Chinook’s IgAN program. BION-1301 is in a Phase 1/2 trial and Chinook plans to release patient data in the first half of next year and provide an update on planned future trials.
When we consult the insiders, we see that two company leaders have recently made major “informational” purchases, which turned sentiment into a strong positive. Srinivas Akkaraju, of the board of directors, bought 208,500 shares of the company, a block worth more than $2.7 million at current levels. The other purchase came from company director Eric Dobmeier, who bought 10,000 shares worth $130,700.
Complementary nature of the Chinook’s research programs caught the attention of Evercore analyst Josh Shimmer, which KDNY rates as outperforming (ie buying) along with a price target of $32. This target suggests the stock will change hands in one year at a premium of ~146%. (To view Schimmer’s track record, click here)
“I think one aspect that investors are missing about KDNY is the benefit of having 2 drugs with potentially complementary mechanisms for IgA nephropathy (ERA antagonist and APRIL antibody) that should be combinable…Although KDNY may not leads the ERA race for IgAN (although atrasentan could prove to be differentiated), it may be able to stay ahead of competitors by being the first to combine data – which in theory should have the most robust effect on proteinuria and disease control,” Schimmer said.
Schimmer’s bullish stance on KDNY is hardly an outlier; in fact, the Wall Street consensus is slightly more optimistic. There are 5 recent Buy reviews on file, making the Strong Buy consensus rating unanimous. The stock is trading at $13.05 and the average price target of $32.80 points to a potential gain of ~151% over the next 12 months. (See KDNY stock analysis on TipRanks)
Vertex Pharmaceuticals (VRTX)
Next up is Vertex Pharma, another biotech research firm. Vertex has already “won” in the field as several drugs have been approved and are on the market – this is a figurative pot of gold for biopharma companies.
Vertex is investigating new treatments for cystic fibrosis, a chronic, deadly, genetically based lung disease. The company’s four approved drugs, ivacaftor and three variants of it, used in combination with other drugs, are sold under the trade names Trikafta, Symdeko, Orkambi and Kalydeco and have been proven to monetize the company, generating a revenue stream of $1 .8 billion in 2Q21. This was an 18% year-over-year increase, and the company raised its full-year revenue forecast — almost entirely dependent on its approved drugs — from $7.2 billion to $7.4 billion.
Vertex’s pipeline includes several drug candidates under investigation for the treatment of sickle cell disease, beta thalassemia, type 1 diabetes and Duchenne muscular dystrophy. These are all genetic diseases, with long-lasting consequences for patients. In addition, the company has research programs in pain relief, alpha-1 antitrypsin deficiency and APOL1-mediated kidney disease. The drug candidates in these latter tracks are all small-molecule experimental drugs.
Looking ahead, Vertex is preparing to initiate two Phase 3 trials of two drug candidates in the cystic fibrosis program, VX-121 and VX-561. These studies are planned for 2H21. In addition, the company will also launch a Phase 2 proof-of-concept study of VX-548 as a treatment for acute postoperative pain in the second half.
On the insider front, there have been two major purchases this month. Bruce Sachs, a company director, bought 15,000 shares for $2.97 million, and Reshma Kewalramani, president and CEO, bought 10,000 shares for $1.96 million.
Looking to the future, Cowen analyst Phil Nadeau remains optimistic. The 5-star analyst rates VRTX as an outperform (ie buy), and its $300 price target implies a roughly 50% increase for the stock over a year. (To view Nadeau’s track record, click here)
“We expect the adoption of Trikafta to grow VRTX’s revenue from $6.2 billion in 2020 to $10.3 billion in 2025, a cumulative increase of 66% and 11% CAGR. are among the best in large cap… Vertex also has four,” Nadeau wrote.
A total of 24 ratings have been registered for Vertex, including 18 buy, hold 5 and sell 1, giving the stock an average buy rating from the analyst consensus. The stock is currently priced at $200.78 and has an average price target of $261.57, giving it upside potential for the coming year at ~30%. (View VRTX stock analysis on TipRanks)
Six Flags entertainment (SIX)
For the last stock on our list, we’ll shift focus to the leisure industry. This sector has been ravaged by the COVID pandemic, but has recovered faster than the general economy in recent months as consumers have a combination of pent-up demand and pent-up savings. Six Flags is a well-known chain of amusement parks, with 27 park properties in North America – in the US, Canada and Mexico – and plans to open one in 2023 in Riyadh, Saudi Arabia.
The rise in consumer interests now that a majority of COVID restrictions have been lifted can be seen in SIX’s share price; the stock is up 109% in the past 12 months. In addition, in 2Q21, the company reported returning to profitability after 6 consecutive quarters of net losses. EPS for the second quarter came in at 81 cents, up from the $1.62 loss reported a year earlier — and better than analyst estimates. Overall, sales were $459.8 million, the highest since 3Q19.
Insider sentiment is positive here after two company executives, Mike Spanos, president and CEO, and director Arik Ruchim both made informational purchases. Spanos spent $498K on 13,200 shares, while Ruchim spent just over $3.8 million on 100,000 shares.
Among the bulls is a 5 star analyst Eric Wold, from B. Riley, who rates SIX stock as a buy, along with a price target of $66. This figure indicates upside potential of about 53% in one year. (To view Wold’s track record, click here)
“Six Flags Entertainment reported Q21 results that were well above expectations as park-level visitor numbers have nearly returned to pre-pandemic levels, with management efforts to monetize those visitors more efficiently. pay off with impressive spending levels per cap…. We continue to see an attractive setup for SIX stocks heading into 2022/2023 and view the regional theme park segment as the best positioned in our coverage for a post-pandemic revaluation,” said Wold.
Overall, the Wall Street consensus on SIX is a mediocre buy, based on 6 reviews with a breakdown of 4 to 2 in favor of buy versus hold. Shares are currently priced at $43.24, with an average price target of $54.17 suggesting an increase of about 25% over the next 12 months. (See SIX stock analysis on TipRanks)
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Disclaimer: The opinions expressed in this article are those of the recommended analysts only. The content is for informational purposes only. It is very important to do your own analysis before making any investment.