No sector of the stock market has been as hot--or befuddling--as biotechnology companies. Investors in a wide swath of biotech issues have seen their holdings double in price over the past year because of advances in drug-delivery systems, DNA technology, carbohydrate chemistry--in other words, stuff that leaves most folks scratching their heads in bewilderment.
If you plan to buy biotech stocks--or short-sell them, for that matter--a good place to start looking for worthy equities is in the pages of biotechnology newsletters. But finding a sophisticated, clearly written one is about as easy as gene-mapping. There are a host of such publications, but most are too technical or narrowly focused en, say, new-drug approvals at the Food & Drug Administration.
Professional journals, such as the New England Journal of Medicine, are only for diehard biotech mavens. At the opposite end are newsletters that "just rehash company press releases and don't provide any analysis," declares Rachael Scherer, a biotechnology analyst at Dain Bosworth Inc.
TREND-SPOTTER. Fortunately, a handful take a broader perspective (table). The best, such as the Medical Technology Stock Letter and BioVenture View, spot trends and hot products before they're reported in the media. Medical Technology, for example, devoted one recent issue to a discussion of a hot trend in pharmaceuticals, "rational drug design," and followed it with a list of companies, including a few privately held ones, that are developing the technology.
BioVenture's February issue led off with a caustic analysis of the Hambrecht & Quist Life Sciences Conference, an annual biotech dog-and-pony show characterized by an "onslaught of indecipherable new technologies," reported Cynthia Robbins-Roth, the editor-in-chief.
A three-month-old entry, Sturza's Medical Investment Letter, takes a different approach by focusing on three or four specific companies per issue. The January issue included a buy recommendation for Barr Laboratories, a generic drugmaker that Sturza described as "very undervalued," and a sell recommendation for pharmaceutical giant Upjohn. "Anything but 'up,' " sniffed Sturza.
LONG ON HYPE. Another often-critical source of biotech analysis is a more general publication, California Technology Stock Letter (415 726-8495). Editor Michael Murphy also writes a newsletter on short-sale candidates called Overpriced Stock Service.
A skeptical viewpoint is essential because biotech companies are often startups that are long on hype but short on sales or earnings. "It's very hard to buy stocks using a newsletter as a tip sheet," says Jeffrey Casdin, an Oppenheimer & Co. biotech analyst and former newsletter editor. "They're no substitute for first-hand research."
Biotech newsletters are like a roadmap through a minefield--they point the way, but you still have to watch your step.