$2 Biotech Could be the Best Chance to Triple Your Money in This Market

StreetAuthority Network

The stock market has been on a topsy-turvy, downhill roller-coaster ride since the start of August when the high of 1,709 was hit in the S&P 500 and 15,658 on the Dow Jones Industrial Average.  

Yet due to fundamental underlying support, such as the improvement in European economies, the Fed being unlikely to change its accommodative monetary policy, and overall solid corporate earnings, I retain my bullish stance on stocks until the end of 2013. 

However, the market remains difficult to time in the short term. Just when stocks seemed to be gaining solid footing, the market was hit with a black swan event when a Syrian chemical warfare attack resulted in sabre-rattling by the United States and fears of a U.S. missile strike.

One way investors can help avoid the effects of black swan political and economic events is by seeking out sectors that are not highly correlated with the overall market. One such group that I am fond of trading is clinical-stage biotech stocks.

Everyone knows these biotech stocks are, by definition, volatile. But they also have very little correlation with the overall market. So when it is difficult to predict what the market will do next, I look into small biotech stocks in search of outperformance. 

One biotech stock that has bucked this summer's fear-driven sell-offs is Idera Pharmaceuticals (IDRA). Shares have rocketed over 300% since the beginning of May, rising from just over $0.50 to a 52-week high of $2.13 last week. Compare this performance to the lackluster overall market during this time frame and it paints a compelling picture for this little biotech stock.

Idera Pharmaceuticals is a clinical-stage biotechnology company that was founded in 1989. It specializes in the discovery and development of novel synthetic DNA- and RNA-based drugs. These drugs are targeted to treat autoimmune and inflammatory diseases, primarily psoriasis, lupus, asthma, allergies and different forms of cancer. The company has zero debt on the balance sheet and an enterprise value of $73 million.

In July, the company announced that it received a U.S. patent on its IMO-8400 drug, protecting both the composition and method of use. The product is the company's lead contender for the treatment of autoimmune diseases, and it is currently being evaluated in a Phase II trial in patients with moderate-to-severe plaque psoriasis.

As in the case with most early stage biotech companies, IDRA has no earnings and incurs high expenses in the attempt to get products to market. But the company raised $16.5 million during the second quarter through a common stock offering. With cash and cash equivalents of $16.3 million, the company said it is confident it can complete the Phase II trials by the first quarter of 2014 and fund operations through the end of that year. This is a major positive for the stock.

Another substantial positive is that the recently appointed chairman of the board of directors, James Geraghty, purchased 300,000 shares at $1.75 for a total of $525,000.

Technically, IDRA looks like a screaming buy right now. The uptrend has been in full effect since May 1. Traders may want to wait for an intraday pullback or enter on upward momentum depending on their preferred method of trading. 

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IDRA Chart

Recommended Trade Setup:

-- Buy IDRA on a pullback to $2 or a breakout above $2.25
-- Set stop-loss at $1.70
-- Set initial price target at $6 for a potential 167%-200% gain in nine months

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