Beware This Year’s Big Gainers
The best stocks aren’t always the best stocks.
In fact, they can be dangerous.
We all want to own stocks that go up more than any other, but the ones that zoom in eye-popping fashion are often extremely small or extremely speculative. Investors might pile in and hope for the best on one headline, and then they might bail just as quickly on the next headline.
You might get lucky and make good money, depending on the timing. But the probability is much higher that you will come out bruised in the end.
Even the batter with the lowest average hits a home run once in a while. Maybe it even wins the game for you in the bottom of the ninth. But you’re foolish if you plan on that happening regularly. And truth be told, you would rather have the proven hitter with the highest average step up to bat when you need a run.
Or if you play the lottery, you may get lucky and get a few bucks back once in a while, but you’re virtually guaranteed to lose money in the long run.
Unless you happen to be the 1 in 300 million that hits the jackpot.
I bring this up because the list of this year’s top-performing stocks as we begin June resembles more of a lottery ticket or the worst hitter in the league cracking a home run than it does a proven path to wealth.
Ever the data nerd, I screened for the biggest gainers so far this year with a market capitalization over $2 billion that trade more than 500,000 shares per day. Here are the top 5:
- Janux Therapeutics (JANX): 398.9%.
- Novavax (NVAX): 262.2%
- Viking Therapeutics (VKTX): 240.6%
- Summit Therapeutics (SMMT): 234.8%
- Avidity Biosciences (RNA): 193.8%
Just looking at their names, you can tell that these are in health care. More specifically, they are all biotechnology companies.
Early-stage biotechs are notoriously risky. They can soar on promising clinical data, like we see here. Some of these are also up on bird flu fears because they have treatments that might help.
But they can just as easily crash and burn on bad clinical data… and that’s much more likely. Nine of 10 drugs in clinical development fail.
Not the kinds of odds you want.
Instead of a 90% chance of failure, how about a 70% chance of success?
A Closer Look at Those Top-Performing Stocks
It was interesting to find that the five top-performing stocks in the first five months of the year are all biotech companies.
What’s even more interesting, but not surprising, is that when you dig into the data, these companies are a huge gamble. Let’s take a closer look and see why.
Janux Therapeutics develops immunotherapies that hope to target and kill tumors while avoiding patient’s healthy tissue. If successful, Janux could provide cancer patients with safe and effective drugs that allow their immune systems to destroy cancerous tumors while also minimizing the typical safety concerns with traditional treatments.
That’s truly incredible.
In February of this year, Janux released blockbuster findings in its phase 1 trial data from tumor-focused candidates. Twenty-three patients were treated with a tumor-activated T-cell engager called JANX007 with positive results.
And the news shot JANX shares up 130%.
But JANX is just a clinical-stage company. It even says so on its website. And when you look at the fundamentals of this business, it only confirms that.
Source: TradeSmith Finance and MAPsignals.com
You can see that the technicals are what drives JANX to have an okay Quantum Score of 62.1. That’s all those investors buying up shares on the hope this stock will keep gaining.
But the fundamentals are what make a company – and its stock – great, and they aren’t impressive at just 50. Janux has both negative sales growth and earnings with an incredibly poor profit margin of -721%.
They just aren’t making money.
When I look at Summit Therapeutics, it’s the same story. SMMT has an even worse Fundamental Score of 25, but the same technicals as JANX at 70.6.
They also aren’t making money… they are losing it hand over fist. Just take a look at the company’s financials.
Source: Yahoo Finance
Maybe you can see those very tiny green revenue bars, but maybe you can’t. They’re that small. Those blue earnings bars are visible though, but unfortunately, they’re very much in the negative.
Just like JANX, Summit’s shares tripled recently after they announced positive results from its lung cancer treatment trials.
Again, that’s incredible news. But it’s a gamble, and nothing has hit the market yet.
The same goes for the rest of those top five performers. Shares shot up after positive headlines and stories.
But despite the positive news, statistics for biotech companies are bleak. Remember that whopping 90% failure rate I mentioned above?
That’s not something I’d want to gamble my money on. And I wouldn’t recommend that you did either.
So What Should You Invest In?
It might surprise you, but I do recommend a biotech company to my TradeSmith Investment Report subscribers. Its Quantum Score tells a different story than those above, though.
Source: TradeSmith Finance and MAPsignals.com
Vertex Pharmaceuticals (VRTX) is above my buy-up-to price but remains right in our optimal buy zone of 70-85 and has superior fundamentals of 75. Just what I like to see.
This pharmaceutical company has positive earnings and sales growth and an impressive profit margin of 36.8%. My system also picked up five Big Money buy signals in the last 30 days.
Can you see the difference?
I also recommend other health care companies to my subscribers. Ones that have much more impressive financials and strong fundamentals as you can see below.
Source: Yahoo Finance
Sure, you could win big with these top-performing stocks. But there’s a very low probability of success when you invest based on a good story… or positive trial data. It’s much better to stack the odds in our favor with proven records to reduce the risk and increase probability of success.
That 70% chance of winning is the historical track record of my system. The same system I use for my personal investing, managed accounts, and my newsletters.
You’re much better off stacking winners through the years than playing the lottery or investing in a highly speculative stock that’s just as likely to fail as it is to succeed.
Talk soon,
Jason Bodner
Editor, Jason Bodner’s Power Trends