Summer’s going fast, and it’s time to consider one of the stock market’s peculiarities: we’re apt to see a bump in the fall, as seasonal vacations end. This year, that seasonal bump will coincide with a reopened economy – assuming, of course, that there are no new lockdowns due to COVID.

We can’t see into the future, but there are signals we can look for that may give some insight into where a particular stock is going. One clear signal comes from corporate insiders, the officers whose positions – involving responsibility for company performance, share growth, and returns to investors and shareholders – demand success, and whose knowledge of the inner workings of the companies they serve points toward coming potentialities.

Legally, insiders are not supposed to trade that knowledge, or to blatantly trade on it, and disclosure rules by government regulators help to keep the insiders honest. Their honest stock transactions, however, can be highly informative. These are the people with the deepest knowledge of particular stocks. So, when they buy or sell, especially in bulk, take note.

Chinook Therapeutics (KDNY)

We’ll start with Chinook, a clinical stage biotech company with a focus on kidney diseases – hence the ticker symbol. Specifically, Chinook is working on the development of precision medicines for rare, severe, chronic kidney diseases, that have both a lack of effective treatment and a clear path for new clinical opportunities. The potential here is clear; kidney disorders are usually terminal without treatment, but with current technology, treatment paths usually lead quickly to dialysis. This is both invasive and expensive (up to $120 billion annually) and Chinook’s goal is to commercialize effective medicinal treatments in this area.

The company’s development pipeline is centered around Atrasentan, it’s most advanced drug candidate. Atrasentan was licensed from AbbVie back in 2019. The drug is an endothelin receptor antagonist, and is under investigation as a treatment for IgA nephropathy and proteinuric glomerular diseases. The first track is the subject of the Phase 3 ALIGN trial, which is enrolling patients, and the second is the subject of the Phase 2 AFFINITY trial, with interim data expected in 1H22.

Chinook’s second leading candidate is BION-1301, also being investigate as a treatment for IgA nephropathy. The drug candidate is an anti-APRIL monoclonal antibody, and represents a second, and complimentary, shot on goal for Chinook’s IgAN program. BION-1301 is in a Phase 1/2 study, and Chinook plans to releasing patient data, and giving an update on planned future studies, in the first half of next year.

Turning to the insiders, we find that two company officers made major ‘informative’ buys recently, pushing the sentiment strongly positive. Srinivas Akkaraju, of the Board of Directors, bought up 208,500 shares of the company, a bloc worth over $2.7 million at current levels. The other purchase came from company COO Eric Dobmeier, who bought 10,000 shares worth $130,700.

The complimentary nature of the Chinook’s research programs caught the attention of Evercore analyst Josh Schimmer, who rates KDNY an Outperform (i.e. Buy) along with a $32 price target. This target suggests the stock will be changing hands for ~146% premium a year from now.

“I think one aspect that investors miss about KDNY is the advantage of having 2 drugs with potentially complementary mechanisms for IgA Nephropathy (ERA antagonist and APRIL antibody) which should be combinable… While KDNY may not be in the lead for the ERA race for IgAN (although atrasentan could prove differentiated), it may be able to leapfrog competitors by being the first to combination data – which in theory should have the most robust effect on proteinuria and disease control,” Schimmer opined.

Schimmer’s bullish stance on KDNY is hardly an outlier; in fact, Wall Street’s consensus is slightly more bullish. There are 5 recent Buy reviews on file, making the Strong Buy consensus rating unanimous. The shares are trading for $13.05, and the average price target of $32.80 indicates a potential upside of ~151% for the next 12 months

Vertex Pharmaceuticals (VRTX)

Next up is Vertex Pharma, another biotech research firm. Vertex has already ‘won’ in the field, as it has several drugs approved and on the market – this is figurative pot of gold for biopharma companies.

Vertex researches new treatments for cystic fibrosis, a chronic, deadly, genetically-based lung disease. The company’s four approved drugs, ivacaftor and three variants of it used in combination with other medications, are sold under the trade names Trikafta, Symdeko, Orkambi, and Kalydeco and have been proven to be money-makers for the company, providing a revenue stream of $1.8 billion in 2Q21. This was up 18% year-over-year, and the company bumped its full-year revenue guidance – almost entirely dependent on the approved drugs – up from $7.2 billion to $7.4 billion.

Vertex’s pipeline includes several drug candidates under investigation as treatment for sickle cell disease, beta thalassemia, type 1 diabetes, and Duchenne muscular dystrophy. These are all genetic diseases, with long-term impact on patients. In addition, the company has research programs in pain relief, alpha-1 antitrypsin deficiency and APOL1-mediated kidney diseases. The drug candidates in these latter tracks are all investigational small molecule medications.

Looking ahead, Vertex is preparing to initiate two Phase 3 studies of two drug candidates in the cystic fibrosis program, VX-121 and VX-561. These studies are planned for 2H21. In addition, the company will also be launching a Phase 2 proof-of-concept study of VX-548 as a treatment for acute post-surgical pain during the second half.

On the insider front, there have been two big purchases this month. Bruce Sachs, a company director, bought 15,000 shares for $2.97 million, and Reshma Kewalramani, President and CEO bought 10,000 shares for $1.96 million.

Looking to the future, Cowen analyst Phil Nadeau remains optimistic. The 5-star analyst rates VRTX an Outperform (i.e. Buy), and his $300 price target implies ~50% one-year upside for the shares.

“We project Trikafta’s adoption will grow VRTX’s revenue from $6.2B in 2020 to $10.3B in 2025, a cumulative increase of 66% and 11% CAGR. This implies VRTX’s growth prospects are among the best in large cap… Vertex also has four other programs in POC Ph. II studies which could plausibly launch before 2025. We expect Vertex stock to recover over the next 12 months and would use the recent weakness to build a position in this premier biotech. VRTX is a top large cap pick,” Nadeau wrote.

Overall, there are 24 reviews on record for Vertex, including 18 Buys, 5 Holds and 1 Sell, giving the stock a Moderate Buy rating from the analyst consensus. The shares are currently priced at $200.78 and have an average price target of $261.57, making the upside potential for the year ahead ~30%.

Six Flags Entertainment (SIX)

For the last stock on our list, we’ll change focus to the leisure industry. This sector was pummeled by the COVID pandemic, but has been recovering faster than the general economy in recent months, as consumers have a combination of pent-up demand and pent-up savings. Six Flags is a well-known chain of amusement parks, with 27 park properties in North America – in the US, Canada, and Mexico – and plans to open one in Riyadh, Saudi Arabia in 2023.

The surge in consumer interest now that a majority of COVID restrictions are lifted can be seen in SIX’s share price; the stock has gained 109% over the past 12 months. Additionally, in 2Q21 the company reported that it had returned to profitability after 6 straight quarters of net losses. Q2 EPS came in at 81 cents, up from the $1.62 loss reported one year earlier – and beating the analyst estimates. On the top line, revenue was $459.8 million, the highest since 3Q19.

Insider sentiment is positive here after two company officers, Mike Spanos, President and CEO, and Director Arik Ruchim both made informative buys. Spanos spent $498K on 13,200 shares, while Ruchim spent just over $3.8 million on 100,000 shares.

Among the bulls is 5-star analyst Eric Wold, from B. Riley, who rates SIX shares a Buy along with a $66 price target. This figure indicates ~53% one-year upside potential.

“Six Flags Entertainment reported 2Q21 results that came in well ahead of expectations as park-level attendance has almost returned to pre-pandemic levels with management’s efforts to monetize that attendance more efficiently paying off with impressive per cap spending levels…. We continue to see an attractive setup for SIX shares heading into 2022/2023 and view the regional theme park segment as the best positioned in our coverage for a post-pandemic re-rating,” Wold stated.

All in all, Wall Street’s consensus on SIX is a Moderate Buy, based on 6 reviews with a 4 to 2 breakdown in favor of Buy versus Hold. Shares are currently priced at $43.24, with a $54.17 average price target that suggests ~25% upside for the next 12 months.

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