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This Relative Strength Play Is Ready to Pop

Stocks in this article: ITMN

 DELAFIELD, Wis. (Stockpickr) -- U.S. stocks are struggling to gain any traction on Tuesday after the Commerce Department said the trade gap narrowed in March by 3.6% to $40.4 billion, which was basically in line with economists' expectations.

>>5 Hated Earnings Stocks You Should Love

All three major averages are trending lower midday, with the Dow Jones Industrial Average off by around 75 points, the S&P 500 down by 7 points and the tech-heavy Nasdaq trending lower by around 20 points.

On down days like today, I like to scan the markets for stocks that aren't going down and that are showing some relative strength. Relative strength is a momentum investing strategy that compares the performance of a stock to that of the overall market. The strategy assumes that if a stock is rising while the market is falling, then that stock should see its price continue to rise.

One stock that's showing some relative strength today and that has some positive news flow is mid-cap biotechnology player InterMune (ITMN), which focuses on the research, development and commercialization of therapies for pulmonology and orphan fibrotic diseases in North America and Europe. This biotech stock has been incredibly strong so far in 2014, with shares up huge by 192%.

>>4 Stocks Spiking on Big Volume

InterMune recently reported earnings and said year-over-year sales during the first quarter for its lead drug, Esbriet, a treatment for idiopathic pulmonary fibrosis, were very strong. Those sales jumped by 188% during the quarter to $30.3 million, from $10.5 million in the year-ago period. Based on those strong results, InterMune raised its 2014 revenue guidance to a range of $130 million to $140 million. That jump in guidance now puts the potential revenue growth for Esbriet at 85% to 100% from its 2013 revenue of $70.3 million. That's some monster growth, and the market will be sure to reward InterMune if the company can hit those targets.

InterMune plans to resubmit its application for Esbriet with the FDA in the U.S. sometime in the early part of the third quarter. If the company can achieve FDA approval, then the planned launch for the drug in the U.S. should hit sometime during the second quarter of 2015.

The recent strong earnings news for InterMune is a nice backdrop for the stock, but the bullish news flow today comes from a number of analysts' comments. One report suggests the company could potentially be acquired in a few months, according to dealReporter.com. Another report from Oppenheimer says the stock should be bought ahead of the American Thoracic Society meeting that's slated for later this month. Oppenheimer also said it met with three leading experts who believe that Esbriet is significantly more tolerable than a competing drug.



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