Elan — this week’s Global Bull Market Alert pick — is a biotechnology company that’s become a symbol of Ireland’s economic resurgence.
Like Ireland itself, Elan has had its share of luck, both good and bad.
The Food and Drug Administration approved Elan’s first blockbuster drug Tysabri, a treatment for multiple sclerosis, in November 2004. The FDA then pulled the drug from the market in February after it was linked to a fatal brain disease. That sent Elan’s stock plunging from $27 to $8 in a single day.
Today, the sun is shining through the dense Irish mist for Elan. Two weeks ago, the stock jumped almost 14% in two days on the news that the FDA has granted Tysabri “priority review” status. This means that it will review the drug for reintroduction into the market place within the next six months.
A.G. Edwards recently upgraded Elan, saying the odds favor a return of Tysabri. Elan itself is convinced that the multiple sclerosis drug can return to the market by the second half of 2006. When that happens, expect the stock to skyrocket.
The news of the FDA review broke Elan out of a tight trading range, and the stock has established a solid uptrend since bottoming in mid-October. The biotech sector as a whole has also shown terrific strength recently, with the Nasdaq Biotech index up 11.6% since October 12th.
So buy Elan (ELN) at market today, and put in a stop at $8.25. But be prepared for a volatile ride. Top hedge fund managers manage the swings in their portfolios by taking smaller positions in volatile stocks like Elan. You might consider the same strategy by taking half your normal position in this pick.
But if you want to go full throttle on the Elan recovery, go ahead and buy the April $12.50 (ELNDV.X) options.
Portfolio Update
Our Global Bull Market Alert is off to a strong start, with all of our first six picks firmly in positive territory. Our two Latin American picks, America Movil (AMX) and Banco Bradesco (BBD), are up more than 10%. The AMX options we recommended three weeks ago are up 62%. The China Mobile (CHL) options have recorded double-digit gains in the week since we’ve recommended them.
Go ahead and sell half of your AMX options to lock in some of your profits. But hold onto your AMX stock, and move your stop up to $24.90. UBS recently increased its price target for AMX from $35 to $38, so we still have a way to go on this one. Also, move your stop in Norsk Hydro (NHY) to $96.00, BBD to $53.50, and EWO to $24.00.
