A Bet on Booming Biotech — And Booking Another 105.53% Gain

Nicholas Vardy

Nicholas Vardy has a unique background that has proven his knack for making money in different markets around the world.

U.S. stock markets ended the week pretty much where they started. The Dow Jones rose 0.10%, and the S&P 500 fell 0.03%. Global Markets continued to recover, with the Emerging Markets MSCI index rising 1.41%.

You had three big gainers in your Bull Market Alert portfolio, with ProShares Ultra Gold (UGL) jumping 6.06%; Bank of Ireland (IRE) rising 5.51%; and Jazz Pharmaceuticals (JAZZ) up 4.07%.

Your November 2013 $52.50 call options in Delphi Automotive (DLPH131116C00052500) soared 10.64% on Friday and are now up 105.53%. Sell all of your remaining options here to lock in yet another triple-digit percentage gain. Raise your stop to $54.80 in the stock to lock in at least a 30% gain in the stock.

You were stopped out of the iShares Dow Jones US Home Construction (ITB) at a slight gain. Each of your other current Bull Market Alert picks is a “BUY.”

This week’s Bull Market Alert recommendation, Celgene Corporation (CELG), is a classic momentum play, which also is supported by solid (and improving) fundamentals.

Celgene is a biopharmaceutical company that develops various therapies to treat cancer and immune-inflammatory-related diseases. Although the company relies on the cancer drug Revlimid for more than half of its revenue, Celgene is far from a one-trick pony. Trials of a pancreatic cancer treatment, Abraxane, have also been positive. The U.S. Food and Drug Administration (FDA) approved Pomalyst, a new Celgene treatment for patients with multiple myeloma, in early February, which should also boost the company’s growth.

For the second quarter, Celgene reported revenue of $1.56 billion — 17% higher than the same quarter last year. That figure also beat the $1.54 billion in revenue expected by analysts. Thanks to stock buybacks, the per-share numbers were even better, increasing 25% compared to second quarter 2012. As a result, Celgene also upped its full-year earnings guidance between $5.80 and $5.90 per share. That means 2013 earnings should be around 19% higher than those of 2012. Yet Celgene trades at a forward price-to-earnings (P/E) ratio of 20.02 — relatively low for a biotech company.

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Meanwhile, the biotech sector is in a steady bull market, outperforming the broader S&P 500 by about 2.5 to 1 over the past six months. Summer is also traditionally the best time of the year for the biotech sector.

So buy Celgene Corporation (CELG) at market today and place your stop at $128.00. I am holding off on recommending options today until the stock consolidates last week’s strong gains.

Portfolio Update

Bank of Ireland (IRE) jumped 5.51% last week. Bank of Ireland opened a large mortgage fund last October geared towards first-time homeowners and stabilization of the fledgling Irish housing market. On the heels of successfully funding over 1.2 billion euro in new loans to-date, and continued strong demand, IRE announced a second similar fund last Wednesday with a two billion euro target. IRE is scheduled to report earnings on Friday, before markets open. Moving above its 50-day moving average last week, IRE is now a BUY.

Delphi Automotive (DLPH) added 1.40% over the previous week. Many analysts have weighed in on DLPH recently, in anticipation of its earnings report later this week. Wells Fargo is the latest firm to join the fray, initiating coverage with an “Outperform” rating. DLPH will report earnings on July 31, before markets open. DLPH is a BUY. Raise your stop to $54.80.

Jazz Pharmaceuticals (JAZZ) rose 4.07%, closing the week with a strong upside move to a new 52-week high. JAZZ is scheduled to report earnings on Aug. 6, after markets close. JAZZ took off after its last earnings report on May 7 (and my May 13 recommendation), adding a whopping 34% over the past three months. JAZZ is a BUY. Raise your stop to $72.38 to lock in at least 25% gain in the stock.

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Sony Corporation (SNE) dipped 2.40%. Jefferies reiterated its ‘Buy’ rating for SNE last Monday and increased its price target to $27.80 — 29% above Friday’s close. SNE will report earnings on Aug. 1, before markets open. SNE is a BUY.

ProShares Ultra Gold (UGL) jumped 6.06% over the past five trading days. Gold had a tremendous week last week, marking its largest single-day gain for the past one-year period. You sold half of your option position on this spike, booking a 57.59% gain. UGL is trading at its 50-day moving average, but remains just pennies shy of breaking above. UGL is a BUY.

WellPoint, Inc. (WLP) gave back 2.32%, after beating analysts’ earnings per share (EPS) estimates on Wednesday. WLP reported $2.60 EPS vs. analysts’ estimates of $2.11 EPS. Revenue came in at $17.6 billion for the quarter vs. a $17.9 billion estimate by analysts — likely adding to WLP’s weakness last week. WLP also issued full-year 2013 guidance of $8.00 EPS on $70-$72 billion in revenue. Analyst firm Barclays raised its price target to $96.00 and the Monness Crespi Hardt firm raised its price target to $110.00 — almost 30% above Friday’s close. With the stock still in a firm uptrend, WLP is a BUY.

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