Zogenix: A Small Biotech Stock To Put On Your Radar

It has been a quite bifurcated biotech sector since the space started a bear market decline late in July. As typical in these frequent “hiccups” in this lucrative but volatile area of the market, the pullback from peak to trough lasted about two months and the biotech indices bottomed in late September. Also, as historically happens large-cap growth names like Amgen (NASDAQ: AMGN) went down less than their smaller-cap brethren and were the first to start to recover.

This is why I always advocate that 50% to 75% of one’s overall biotech portfolio should be in these large cap “core” positions, depending on one’s risk tolerances. It is a strategy that I have developed over two decades of investing in this space and one of the core of my core rules for outperforming the benchmark averages.

I have gotten a lot of questions from followers on why their particular small cap biotech stock has fallen recently. About 80% to 90% of the time, nothing has changed as far as the prospects for the company. There have been no trial failures, equity raises and analysts downgrades. The only factor that has changed is the sentiment on the sector as the market temporarily goes into one of its periodic “risk off” modes. Such are the perils of investing in high beta parts of the market.

However, eventually the same forces that have lifted the large cap biotech stocks off their recent bottom will spread out to the smaller more speculative part of the sector. One small cap biotech/pharma stock that looks like it has bottomed recently and that I have in my own portfolio is Zogenix (NASDAQ: ZGNX). The shares look like they have put in a floor at around the $11.00 level and have recently surged past $14.00 a share. However, this is still a far cry from where they were trading before the recent sell-off in Biotech Land. I still think the equity has solid upside potential and that is why we are making Zogenix our stock of the day.