Investment psychology presents an interesting conundrum. When a stock soars, the natural tendency is to want to get in on the action, as the FOMO kicks in and it is hard to resist the allure of further gains. This is often the wrong choice since latecomers are likely to sell the stock at a premium.
Alternatively, a beaten-down stock triggers fear tremors. The unavoidable worry about the low price and negative market sentiment of the stock will lead potential investors to avoid supporting what seems to be a horse losing. Sometimes this is the case, but other times share price weakness is the best time to get in before a stock sets off on its upward path.
So how do you say the winners losers? While nothing is assured, the Wall Street experts will lend a helping hand. In a recent Clients Note, B. Andrew D’Silva, an analyst at Riley FBR, highlights stocks in the healthcare sector which he believes will make headway in 2020.
“The company either ended 2019 on a strong footing, where momentum is expected to carry over into 2020, or fell out of favour, but execution will result in a reversal,” commented the analyst.
We were able to zoom in on 2 of D’Silva’s choices using TipRanks ‘ Stock Comparison tool. Either beaten-down or flying high, there’s plenty of space for the upside, and everyone on the street is currently scoring a Strong Buy consensus. Let’s take a closer look:
Alimera Sciences (ALIM)
Alimera Sciences had a wretched 2019. Over the year, the firm focusing on retinal disease lost 30 per cent of its share price. Not so far, though, 2020 has been childlike. The share price is down year – to-date by nearly 10 percent.
Investors will stay away, then? Absolutely not, “D’Silva says. Now is the time to reassess the potential of a biopharma. “Several companies launched ophthalmic offers during 1H19, and set up / expanded their sales teams.” The numerous job opportunities contributed to the depletion of Alimera’s own sales team.
“We believe this compounded investor work capital concerns, because the interest-only period of ALIM’s $40 million term loan was scheduled to end within one year,” D’Silva noted.
The expert, however, expects a “significant reversal this year.” He cited a resolution to the company’s sales force revenue issues, a growing international footprint, and the “significant milestone” of the positive 2020 management adjusted EBITDA guidance as grounds for the anticipated turnaround.
The fall, he says, was instigated by the significant impact of 2Q19 results that miss expectations, mainly due to a significant loss of domestic sales power.
CytoSorbents Corporation (CTSO)
CytoSorbents is a beaten-down stock in a similar vein to Alimera, showing yet more wreckage. During last year’s bull run, it lost 52 per cent of its share price.
CTSO’s blood purification technologies are used to control deadly inflammation in patients suffering from critical illness and heart surgery. After showing revenue growth of 51 per cent in 2018, the growth curve in the first three quarters of 2019 slowed down to 9 per cent year-over-year.
D’Silva explained, “While the slower top-line growth might concern at first glance, the two main reasons for the slowdown were two CS distributors and Fresenius Medical Care — which together accounted for ~15 percent — 20 percent of the 2018 CTSO top-line — which entered 2019 with excess inventory, as well as CTSO with sales-force bandwidth issues in its largest market.
With CTSO starting operations in Poland, Sweden, Denmark, Norway and the Netherlands, D’Silva anticipates a turnaround in the coming months.
“While we do not anticipate that CTSO has realized significant benefits from new direct sales regions in 4Q19, since most new sales hires were on board at 2H19, we expect the increased reach of CTSO to provide a significant benefit this year… Meanwhile, we assume that there are multiple clinical and regulatory catalysts on the horizon that should be major stock value drivers if they succeed,”