Betting on the Biotech Bull

This week marks the start of earnings season for all major biotech stocks. And if the breakout in biotech stocks at the end of last week is any indication, the news for the sector should be good.

Among the fast-growing major biotechs announcing earnings is this week’s Bull Market Alert recommendation, Connecticut-based Alexion Pharmaceuticals (ALXN).

Although Alexion develops a wide range of drugs, the feather in Alexion’s cap has been Soliris, a $500,000 million a year drug approved to treat paroxysymal nocturnal hemoglobinuria (PNH), an ultra-rare red blood cell disease. Soliris is approved for PNH in the United States, the European Union, Japan and many other countries. Soliris revenue alone is expected to grow 36% to almost $735 million in 2011. And last year, the FDA approved Alexion’s Smithfield, R.I.-based manufacturing facility as a second source of commercial supply for Soliris last August.

Alexion is also expanding Solaris’ label — that is, the diseases Solaris can be used to treat. The company recently announced that it has submitted marketing applications to the U.S. Food and Drug Administration (FDA) and the European Medicines Agency (EMA) for Soliris as a treatment for patients with atypical Hemolytic Uremic Syndrome (aHUS), an ultra-rare, chronic and life-threatening disease. That’s good news, as overreliance on the treatment of PNH was an issue for investors.

Alexion will report its financial results for the first quarter this Thursday, April 21, before the financial markets open. Alexion is expected to earn 50 cents a share in the first quarter, an increase from earnings of 37 cents a share in the first quarter last year. Total revenue is expected to grow 40% to $165 million.

But I think there is a good chance Alexion will beat these estimates, causing the stock to enjoy a nice short-term pop.

Here’s why…

First, the company has beaten Wall Street expectations for five straight quarters. A strategy of “under-promise and over-deliver” is always a good sign for investors.

Second, Alexion recently updated its 2011 revenue guidance, from $715-$735 million, to $720-$740 million.

Finally, the stock pulled back slightly last week, and it is due for a technical bounce.

So buy Alexion (ALXN) at market today, and place your stop at $90.00.

If you want to play the options, I recommend the August $100 calls (ALXN110820C00100000).

Portfolio Update

Alliance Resource Partners L.P. (ARLP) pulled back sharply this week by 7.20%. It’s hard not to see the unwarranted pullback as market manipulation that is motivated by options expiration. With the bull market in coal intact, this remains a BUY.

Cognizant Technology Group (CTSH) pulled back 1.92% last week. This has everything to do with rival Infosys’ disappointing revenues that caused the stock to drop 13%, and nothing with the fundamentals of CTSH itself. CTSH remains a BUY.

Bank of Ireland (IRE) ended the week 12.12% lower. Rating agency Moody’s has downgraded long-term deposits at Irish banks by two notches to junk status. This follows last week’s cut to Ireland’s sovereign debt rating by the agency. This one will bounce around a lot but will end up in the money. Below its 50-day moving average, IRE is now a HOLD.

Joy Global (JOYG) got off to a slow start, ending the week 2.08% lower. Jim Cramer recently highlighted the stock and it is a top pick in Jim Simon’s Renaissance Technologies hedge fund. JOYG remains a BUY.

Nabors Industries (NBR) ended the week flat — though it rose sharply toward the end of the week. With oil in a secular bull market, this onshore oil driller remains a BUY.

National Bank of Greece SA (NBG) rose 6.67% this past week, as worries about the European banks re-ignited. This saga changes week to week. Volatility is what is going to make this trade work in the short run. And we have plenty of that. NBG is now a HOLD.

Novo Nordisk A/S (NVO) dropped 1.22%. This combined bet on pharmaceuticals and Northern European markets remains a BUY.

ELEMENTS Rogers Intl Commodity Agri ETN (RJA) dropped 3.5% last week — its first negative week in five. This bet on agricultural food prices remains a HOLD.

Sina Corporation (SINA) rose another 4.37% last week to close at yet another record high. I’m still waiting for a pullback so I can recommend some more options on this relentless riser. Raise your stop to $97.50. SINA remains a BUY.

Toyota Motor Corp. (TM) ended the week flat. Toyota has now resumed car production at all of its plants in Japan for the first time since last month’s earthquake and tsunami. TM remains a BUY.

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