3 Biotech Stocks Predictive Analysts Expect to Outperform

Here we offer a way to search for companies that analysts expect to outperform.

Using analyst ratings from Reuters that are presented on a linear scale (with 1 = "Strong Buy" and 5 = "Strong Sell"), we sliced the ratings data of stocks in the biotech industry into three time periods separated by a month, and identified the group of analysts that have shown predictive value, i.e. been able to accurately predict the direction of stock moves for two consecutive time periods.

We further narrowed down the list by only focusing on those stocks that have seen bullish trends in analyst opinion. In other words, predictive analysts, with a proven (short-term) track record of predicting their stock's direction, think these stocks are due for a rebound.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the top six stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.

Your browser does not support iframes.

Although past performance is no guarantee of future results, the recent accuracy of these analyst ratings suggests their opinions may be a helpful starting-off point for your own analysis.

Do you think these stocks will outperform?

A quick reminder: Analyst ratings moving closer to 1 represent bullish trends, while ratings moving closer to 5 reflect bearish analyst sentiment. All alphas are relative to the S&P 500 index over comparable time periods. The list is sorted by market cap.

1. Regeneron Pharmaceuticals, Inc. (REGN): Biotechnology Industry. Market cap of $5.22B. The stock is a short squeeze candidate, with a short float at 10.31% (equivalent to 5.16 days of average volume). The stock has gained 151.18% over the last year.

Mean average rating changed from 2 to 2.23 between 04/22/11 and 05/22/11 (bearish change). Analysts correctly predicted the direction of the stock over the next month, with the stock generating an alpha of -2.67%.

Analysts also got it right between 05/22/11 and 06/21/11, with the mean rating changing from 2.23 to 2.14 (bullish change). Over the following month, the stock generated an alpha of 4.61% relative to the S&P 500 index, as predicted by the analysts.

This same group of analysts now expects the stock to outperform in the future, with the mean rating changing from 2.14 to 2.08 between 06/21/11 and 07/21/11 (i.e. bullish change).

2. InterMune Inc. (ITMN): Biotechnology Industry. Market cap of $2.15B. This is a risky stock that is significantly more volatile than the overall market (beta = 2.27). The stock has gained 250.34% over the last year.

Mean average rating changed from 1.93 to 2 between 04/22/11 and 05/22/11 (bearish change). Analysts correctly predicted the direction of the stock over the next month, with the stock generating an alpha of -3.57%.

Analysts also got it right between 05/22/11 and 06/21/11, with the mean rating changing from 2 to 1.92 (bullish change). Over the following month, the stock generated an alpha of 0.36% relative to the S&P 500 index, as predicted by the analysts.

This same group of analysts now expects the stock to outperform in the future, with the mean rating changing from 1.92 to 1.75 between 06/21/11 and 07/21/11 (i.e. bullish change).

3. Immunogen Inc. (IMGN): Biotechnology Industry. Market cap of $1.04B. The stock is a short squeeze candidate, with a short float at 9.5% (equivalent to 9.27 days of average volume). Exhibiting strong upside momentum--currently trading 11.06% above its SMA20, 19.61% above its SMA50, and 50.14% above its SMA200. The stock has had a good month, gaining 28.45%.

Mean average rating changed from 2.12 to 2.11 between 04/22/11 and 05/22/11 (bullish change). Analysts correctly predicted the direction of the stock over the next month, with the stock generating an alpha of 0.01%.

Analysts also got it right between 05/22/11 and 06/21/11, with the mean rating changing from 2.11 to 2 (bullish change). Over the following month, the stock generated an alpha of 24.73% relative to the S&P 500 index, as predicted by the analysts.

This same group of analysts now expects the stock to outperform in the future, with the mean rating changing from 2 to 1.8 between 06/21/11 and 07/21/11 (i.e. bullish change).

*Data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.