Biotech, cloud computing and bulk materials could be winners as 2014 unfolds.
optionMONSTER's researchLAB market-analysis tool has shown emerging strength in those industries as investors look for new opportunities amid the ongoing bull market. Of the three, only biotech outperformed the broader market last year.
Large-cap biotechnology and pharmaceutical names have been strong for a long time, but investors are now turning to a new roster of smaller companies with strong growth prospects.
Acadia Pharmaceuticals, for instance, lit up researchLAB's momentum meter in late 2012 and then rallied more than 400 percent through early October. It's pulled back more recently and may be ready to run again as it makes higher lows along its 100-day moving average. Management plans to seek approval of its pimavanserin drug for the treatment of Parkinson's disease psychosis later this year, so there are no major events on the calendar soon. Given its longer-term uptrend and strength in the broader space, ACAD looks interesting around its current $24 level. The June 26 calls for $4 or better, with a 50 percent stop loss, are one way to play it, as well.
BioMarin Pharmaceutical also has a deep pipeline and got a boost after Deutsche Bank raised its price target last week. The stock has been consolidating over the longer run and may be getting ready for the next push higher after finding support above its 50-day moving average. The July 75 calls for $7.50 or better, also with a 50 percent stop, are one way to play it.
Smaller names showing bullish price action recently include Pacific Biosciences and Supernus Pharmaceuticals. Neither have great option liquidity so shares would make more sense in those.
Cloud computing has been dead in the water following a strong run in 2009 and 2010. Much of the weakness resulted from belt-tightening by government agencies, but enterprise spending appears to be making a comeback. We've recently seen strong price action in NetApp, F5 Networks, Cavium Networks, and Teradata, to name a few. Given the improving economy, the ongoing secular shift toward cloud computing and these companies' long-term underperformance, now could be the time for them to play catch-up.
Bulk materials include suppliers of crushed stone, like Vulcan Materials and Martin Marietta, plus cement giant Cemex. Of those three, only CX has kept up with the S&P 500 over the last year, but they've all delivered at least twice the performance of the broader market in the last three months. Once again, the story is an improving economy and the new catalyst of domestic energy production. VMC had bullish call buying in December and CX followed this month. All three of these stocks remain trapped in their long-term ranges, and it's probably no more than a matter of time before they break back to levels from before the 2008 crash.
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