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A Speculative Biotech Catalyst Trade: ORMP

Stocks in this article: ORMP IBB

 DELAFIELD, Wis. (Stockpickr) -- The recent selloff in the biotech sector hasn't left much behind. Type just about any biotech ticker into your screens and you'll likely get back an ugly chart. The bears have done damage to a hot sector that's often driven by momentum players -- which should be of no surprise to seasoned traders. Momentum cuts both ways on Wall Street. It's not just a bull's playground.

>>5 Stocks Under $10 Set to Soar

The recent pummeling of the biotech sector has some people on Wall Street claiming that the entire complex is in a bubble, and there is absolutely some truth to that. The iShares Nasdaq Biotechnology Index ETF (IBB) soared from $83.50 a share in mid-2011 to its 2014 high of $275.40 a share. That's an incredible run, and there's no doubt in my mind that the biotech sector entered the frothy stage. As we all know, on Wall Street, bulls make money, bear make money, but pigs get slaughtered.

That being said, the sector could be setting up for a tradable bounce soon, and many of the beaten-down names will rebound sharply to the upside. Remember, the smart short-sellers don't stay in the game long without taking profits -- and when they come in to cover their short positions, many of these beaten-down stocks will get squeezed higher as the bulls take back control, at least temporarily.

>>5 Big Trades to Brace for a Correction

With this in mind, it's time to start identifying some of these beaten-down biotech stocks that could be ripe for big rebounds.

One small-cap biotech stock that's been beaten down and pushed into extremely oversold territory is Israeli-based Oramed Pharmaceuticals (ORMP), a development-stage pharmaceutical company that's engaged in the research and development of pharmaceutical solutions for the use of orally ingestible capsules of pills for delivery of polypeptides. The company's product portfolio includes ORMD-0801, an oral insulin capsule that is in phase IIa clinical trials for the treatment of diabetes; and ORMD-0901, an analog for GLP-1 gastrointestinal hormone, which is in pre-clinical trials.

Oramed Pharmaceuticals has a market cap of $108 million and an enterprise value of $93 million. This company currently has $7.79 million of cash on its balance sheet and around $47,000 of debt. This is a highly speculative biotech stock that has about 11 employees, no approved product on the market and zero revenue. If you're a fundamental investor, then this stock is probably not for you. However, if you're a trader like me, then this could be the perfect stock to play in the near-term for a variety of reasons.

>>5 Stocks With Big Insider Buying

The first reason I am bringing this name to you is because Oramed Pharmaceuticals is insanely beaten-down at its current price of just above $11 a share, down 27% so far in 2014. To get the true picture of how far this stock has dropped, though, look at its chart: ORMP hit a high in January of $31.73 a share and crashed to a March 24 low of of $9.64 share. Anyone who held this stock all the way down from those highs truly knows the meaning of oversold. Yes, oversold can always get more oversold, and obviously a stock doesn't crash that badly for no reason at all. That being said, ORMP did not go down on Thursday as the market slid lower, and it's held up relatively well the last few trading sessions while the market has been in turmoil.

The second reason that Oramed Pharmaceuticals looks interesting here from a trading perspective is because this company has a major catalyst on the horizon. It will be presenting detailed results from its recently completed phase IIa FDA trial on ORMD-0801 at the 2014 Diabetes Summit taking place April 23 to April 25 in Boston. I have no idea if the results will be good, but what I can easily foresee is the stock running up into that event off its extremely oversold condition.

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