Peregrine Pharmaceuticals (PPHM) January effect candidate?

I've written before about investors falling in love with their stocks.  That doesn't just go for the winners, people fall in love with those that have lost them money too.

Nobody wins them all, I don't care how good you are.  Anyone who believes someone who says they never pick a losing stock, they probably believed Donald Trump's promises about locking up Hillary Clinton and draining the swamp.

Sometimes the loss is blamed on manipulation, but whatever the reason investors have often read all the SEC filings, every PR, all the Motley Fool and Seeking Alpha articles. Message boards have been scoured looking for that golden piece of bullish information that preaches to the converted longs.

But as the year comes to a close, sometimes you have to cut bait and let go, especially if you have gains with other stocks.  Capital losses have value because they can be used to offset gains that have been booked on other stocks.

Still, letting go is hard, and that's where the January effect comes in.

A lot of investors will hold on until late in the year, before finally hitting the sell button in December and booking the capital loss.  But that doesn't mean they stop paying attention to the stock they sold, its still watched closely.  And then after 30 days many will buy back in.  That 30 day period is important because buying back in after less than 30 days means you lose the capital loss for tax purposes.

The result of buyers coming back into a stock is frequently a bounce in the share price.  And sometimes it starts in late December as some who never held a position buy in looking to play the January effect with a beaten down stock.

Fundamentals aside stocks trade based on supply and demand more than anything else.  Obviously the best time to be buying any commodity is when demand is low, and the best time to be selling is when buyers are in abundance.  If many of those who sold for a tax loss storm back into a stock in January, that represents a good time to sell, at a time of heightened demand.

So what makes PPHM a good candidate for the January effect in my opinion?  Let's start with the a look at the chart:

The share price for PPHM cratered in late February 2016 with the announcement the company was halting it's phase III trial of Bavituximab, causing the PPS to fall from over $1.00 to 30 odd cents. For the remainder of the year the stock has been trading in and around 30 to 40 cents with some short lived spikes above 50 pennies.

Obviously anyone who'd bought shares before the trial halt would be sitting on a paper loss, and selling would allow investors to book capital losses to be used as an offset against capital gains.  But now the question is:  Why would anyone want to buy back in?

I see two reasons, the fist being Avid Bioservices, Peregrine's wholly owned subsidiary.  Their contract provider of bio-manufacturing services (as well as providing services for their own development stage drugs)  just reported 2nd quarter revenues of $23.4 million with a reported backlog of $73 million.  According to recent news, with Avid's continued revenue growth, overall profitability is targeted within the next 18 months.

http://finance.yahoo.com/news/peregrine-pharmaceuticals-reports-financial-results-210500133.html

And the second reason is also outlined in the above linked PR on the company's financial results. Their drug candidate Bavituximab, while it failed the futility analysis in the company's phase III trial, post hoc analysis of the results may lead to the company finding alternative targets and/or combinations.  

Finally I will bring up short interest, because I consider a critical point of research and DD.  Back in February, before announcing the phase III futility test failure, short interest was over 11.4 million.  As recently as June the number of shares borrowed and sold was still over 9.4 million.  Subsequent to June though the number of shorted shares dropped substantially with the most recent update showing 646,318 shares short current up to November 30th 2016.  

http://www.nasdaq.com/symbol/pphm/short-interest

Props to short players who booked some solid gains by selling high and buying back low on the cover.  Now with less than 1% of the float short as of the most recent update, I don't see much of a risk/reward play for short players.  Shorting a stock trading for 30 to 40 cents is fraught with risks, especially if the company achieves profitability and/or success with bavituximab.  

We shall see if PPHM does benefit from the January effect.  If it does, then the safest thing to do in my view is to book profits.  As I write in just about every entry on this blog, "nobody ever goes broke taking profits".  I do think there is a potential for PPHM to deliver over the longer term, but as with any stock, there are risks.  If PPHM does bounce in January and then keeps going, those who sold for the January effect could always cry into the money they made.

As always, not a recommendation, just my thoughts and opinions.  Comments are welcome, just no profanity please.  

Good luck