Riding the Biotech Bull

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.
 
Your biggest gainer was Bank of Ireland (IRE), which shot up 11.72%, and is now back to a BUY. 3D Systems (DDD) also announced earnings and shot up 7.59%. National Bank of Greece (NBG) rose 3.92% on news of a potential investment from billionaire contrarian investor Wilbur Ross, who also holds a big chunk of Bank of Ireland. NBG is now back to a BUY. All of your current Bull Market Alert positions are back to BUYS.

 

 
Biotech has been one of the hottest sectors in the U.S. market this year. Some of your biggest — and quickest — double and triple digit percentage gainers — have come from biotech picks like Alexion Pharmaceuticals (ALXN) and Pharmacyclics (PCYC). I expect a strong performance from your current holding Novo Nordisk A/S (NVO), which added 4.62% last week.

 

 
This week’s Bull Market Alert pick continues to bet on biotech through the ProShares Ultra Nasdaq Biotechnology (BIB). This unique exchange-traded fund (ETF) offers a broad-based and diversified bet on the U.S. biotechnology sector with a twist. Its performance corresponds to twice (2x) the daily performance of the underlying Nasdaq Biotechnology Index.

 

 
The top 10 holdings in the Nasdaq Biotech index include some familiar names, including:

 

 
Alexion Pharmaceuticals, Inc. (ALXN) 8.19%

 

Amgen, Inc. (AMGN) 7.34%

 

Regeneron Pharmaceuticals, Inc. (REGN) 6.44%

 

Gilead Sciences, Inc. (GILD) 5.54%

 

Biogen Idec, Inc. (BIIB) 5.48%

 

Celgene Corporation (CELG) 5.07%

 

Vertex Pharmaceuticals, Inc. (VRTX) 4.64%

 

Perrigo Company (PRGO) 4.44%

 

Mylan, Inc. (MYL) 2.64%

 

ONYX Pharmaceuticals, Inc. (ONXX) 2.42%

 

 
As it happens, it seems like all of these stocks are on a roll. Alexion Pharmaceuticals (ALXN) surged 8% last week as it smashed earnings expectations and raised its outlook. Amgen (AMGN), Celgene (CELG), Biogen Idec (BIIB), Gilead Sciences (GILD) and Regeneron Pharmaceutical (REGN) also all topped analyst consensus views, raising their Q3 and full-year guidance. Amgen actually hit a seven-year high.

 

 
The diversified approach of an ETF also gives you an overall smoother ride, protecting you against the potential “stock assassination” Questor Pharmaceuticals (QCOR) was a victim of a few weeks ago.

 

 
But what gives this ETF its kick in a rising market is its leverage. Just look at how BIB’s leveraged performance compares to un-leveraged little brother, the iShares Nasdaq Biotechnology Index Fund (IBB), over the past six months.

 

 

 

 
As you can see, a bet on BIB made more money than IBB. But this came at the price of higher volatility. (I should disclose that IBB is also a recommendation in my monthly investment service, The Alpha Investor Letter, and is a position I hold for my clients at Global Guru Capital.)

 

 
So buy ProShares Ultra Nasdaq Biotechnology (BIB) today, and place your stop at $90.00. If you want option-style returns on the biotech sector, I recommend the $140 December call options (IBB121222C00140000) on the unleveraged iShares Nasdaq Biotechnology Index Fund (IBB).

Portfolio Update

Bank of Ireland (IRE) jumped 11.72% over the past five trading days. IRE made an abrupt upward turn through the 50-day moving average early last week from the $5 support level — which is now a proven and robust line in the sand. IRE is scheduled to report earnings on Aug. 10 and is a BUY.

 

 
National Bank of Greece SA (NBG) rose 3.92%. Some “chatter” emerged last Friday regarding a rumor that majority investor Wilbur Ross may be interested in an NBG “takeover.” Ross is also a big investor — and actually sits on the Board of Bank of Ireland (IRE). Although uncorroborated by Ross’ staff, this event sent a small shock wave through NBG’s stock price that was big enough to push it above its 50-day moving average. NBG is now a BUY.

 

 
Novo Nordisk A/S (NVO) added 4.62% last week. NVO reported the completion of several share repurchase transactions last week totaling 176,000 shares. This sent NVO’s share price soaring to hit a new 52-week high. NVO will report earnings on Aug. 9 and is a BUY.

 

 
3D Systems Corp. (DDD) popped 7.59%. DDD sent investors on a wild ride late last week after reporting mixed earnings. DDD reported an inline Q2 earnings-per-share figure of $0.27 vs. a $0.27 estimate on a revenue “miss” of $83.6 million vs. an $84.1 million estimate. Overall, the earnings report was good enough to prompt analyst firm Canaccord Wealth Management to raise its price target from $32 to $40. DDD is a BUY.

 

 
Standard Pacific Corp. (SPF) lost 3.99%. SPF also reported Q2 earnings of $0.04 matching estimates.  Revenues of $274.9 million were slightly under the estimated $283.87 million figure. SPF is a BUY.

 

 
Ross Stores Inc. (ROST) was even for the week. ROST’s one-year price history is an interesting study in reliability. Looking back over the past twelve months, ROST has been extremely respectful of the 20-day moving average. In addition, the few dips it has taken below the 20-day moving average have found staunch support at the 50-day moving average. The reliability of this price action yields good insight as to when you should reduce or add to your position going forward. ROST is scheduled to report earnings on Aug. 16 and is a BUY.
 

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