The biotech business is shrouded with uncertainty -- from awaiting FDA decisions or the results of a clinical trial to determining whether the company can even capitalize on its latest scientific discovery -- and this uncertainty is reflected in how quickly investors change their minds about biotech firms.
Because of how easily the day-to-day changes can drastically affect stock prices, many investors consider this industry too difficult to track. We can therefore assume that qualified investors who brave the sector are keeping a very close watch on it.
Applying short-seller trends
Interested to know what informed investors are thinking about a stock? One of the most telling indicators is shares shorted. Since shorting indicates a bearish outlook, stocks with increasing short-selling are being given a more bearish outlook by traders.
Because short-selling requires borrowing, an individual or institution must meet several requirements (including background checks) to engage in short-selling. Thus, short-sellers are generally more sophisticated than the average investor.
For this reason, they are often referred to as "Smart Money" investors.
The (bullish) list
We ran a screen on the biotech industry for stocks seeing the most significant decreases in shares shorted month-over-month, indicating that short-sellers are more bullish about these names than before.
Do you agree with short-sellers' optimism for these names? Use this list as a starting point for your own analysis.
List sorted by decrease in shares shorted. (Click here to access free, interactive tools to analyze these ideas.)
List compiled by Alexander Crawford:
1. Genetic Technologies
2. Sangamo Biosciences
4. Charles River Laboratories International
Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned above. Analyst ratings sourced from Zacks Investment Research.
Kapitall's Rebecca Lipman and Alexander Crawford do not own any of the shares mentioned above. Short data sourced from Yahoo! Finance.