The Zacks Analyst Blog Highlights: Amgen, Celgene, Gilead Sciences, Vertex
Pharmaceuticals and Nasdaq Biotechnology Index ETF
CHICAGO, Jan. 28, 2013
CHICAGO, Jan. 28, 2013 /PRNewswire/ -- Zacks.com announces the list of stocks
featured in the Analyst Blog. Every day the Zacks Equity Research analysts
discuss the latest news and events impacting stocks and the financial markets.
Stocks recently featured in the blog include Amgen (Nasdaq:AMGN), Celgene
(Nasdaq:CELG), Gilead Sciences (Nasdaq:GILD), Vertex Pharmaceuticals
(Nasdaq:VRTX) and Nasdaq Biotechnology Index ETF (Nasdaq:IBB).
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from the Pros newsletter: http://at.zacks.com/?id=5513
Here are highlights from Friday's Analyst Blog:
Safest Way to Play Biotech
Investing in biotechnology can be exciting, profitable, and loaded with land
mines. For every company that hits the jackpot with a new marketable drug that
makes it through the FDA gauntlets, there are a dozen stocks that run-up on
such hopes and then crash and burn when the trials fail.
For this reason, some investors consider biotech stocks to be binary trades.
Years ago I met some option traders who specialized in these "event" stocks
and they called them "bipolar."
Whatever you want to call them, you have three basic routes to go if you still
want to participate in biotech stocks:
1) Stick with large-cap, established businesses with deep and broad drug
pipelines like Amgen (Nasdaq:AMGN), Celgene (Nasdaq:CELG) and Gilead Sciences
2) Plow into lots of homework on the small and mid cap names with promising
new research and good Zacks Rank earnings momentum. Note than many of these
companies may be as yet unprofitable, but they still often earn a Zacks #1 or
#2 rank if the trend of Earnings Estimate Revisions (EER) is rising
If analysts suddenly see a company making it through some FDA hurdles of
testing with one or more drugs for some form of cancer or other medical need
that represents a significant market opportunity, they will begin raising
estimates to account for this potential profitability. The takeover component
of valuation is also a factor since big biopharma loves to scoop up hot new
Small and mid-cap biotech companies that I had some homework and investing
success with in 2012 were Vertex Pharmaceuticals (Nasdaq:VRTX), among others.
But even these stocks had wild swings and if you were on the wrong side of the
earnings or FDA trend, you got burned. Which brings me to a third way to play
biotech with less volatility and company-specific risk.
3) Buy the Nasdaq Biotechnology Index ETF (Nasdaq:IBB). In March 2009, when it
looked like stocks had made a trade-able bottom during the financial crisis, I
wasn't out there picking individual stocks for people. But in my first
appearance on business TV, I said it was a no-brainer for investors to put
money into the future by buying two ETFs: Technology through XLK and Biotech
through IBB, which was trading around $63 at the time.
The IBB is near its all-time highs above $148. Am I saying you should buy it
now at $145 after you just missed the drop in November to $125?
Yes, I am. At least a partial allocation. If the broad market goes on to make
new highs above S&P 1550, biotechs will be part of the story and the IBB will
make new highs as well.
And in the big picture, if you want exposure to the future of drug medicine,
this is one of the safest ways you are going to find. The current waves of
growth here are in R&D that is exploiting new knowledge of the human genome to
create new drugs and treatments.
Genetic targeting of diseases is a multi-billion dollar growth area that has
large pharma firms like Pfizer, Bristol-Meyers and Merck scrambling to buy up
younger companies with innovative science.
My best sense of the future of medicine is that 5-years from now more than
half of the names in the top 10 of IBB will be different, but this index ETF
with probably have net assets that put its price north of $200.
Even if I'm wrong, buying below $150 and trading the swings on the way to $175
in a few years isn't a bad way to participate either.
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