Back into Biotech?

Nicholas Vardy

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

It was another tough week for markets last week, with the Dow Jones down 2.35% and the S&P 500 tumbling 2.65%. The Nasdaq continued to be hit by the biotech sell-off, falling 3.10%. Meanwhile, the MCSI Emerging Markets Index continued its outperformance and rose 1.28%.

Big gainers in your Bull Market Alert portfolio included GasLog Ltd. (GLOG), which gained 3.44% and hit a 52-week high. You now have a 47% gain in your related options, as well.

You were stopped out of Google, Inc. (GOOGL) at a loss. Both The Bank of Ireland (IRE) and AbbVie Inc. (ABBV) fell below their 50-day moving averages and moved to a HOLD.

With the Indian stock market pulling back the last two days and trading lower overnight, I recommend that you hold off on entering last week’s Bull Market Alert recommendation of Tata Motors (TTM) for another week, as well.

The big (and painful) news has been the sell-off in biotechnology. On Friday, the Nasdaq Biotechnology Index dropped below its 200-day moving average for the first time since December 2011.

Looking at the valuations of large biotech companies like Gilead (GILD), Celgene (CELG) and Amgen (AMGN), it is extremely tempting to recommend one of these. These stocks are trading at forward price-to-earnings (P/E) ratios of 11.8, 14.29 and 12.84, respectively. Their price/earnings to growth (PEG) ratios are 0.50, 0.75 and 1.83, respectively, making the first two of these picks incredibly cheap by this measure, as well.

I’ve made contrarian recommendations here before, suggesting that you buy Gazprom (OGZPY) the day after Russia annexed Crimea on March 17. That sounded crazy at the time. Yet, you’re sitting on a 14.67% gain in the stock, and with your recently raised stop, you have a guaranteed 10% profit in the stock.

And just look at how Russia has fared against the U.S. market over the past month.


So, I am struggling with two contradictory impulses here.

On the one hand, George Soros advised, “It takes courage to be a pig!”

On the other, one of the many first rules of trading is “never catch a falling knife.”

Biotechnology, like Russia, can be a treacherous area in which to invest. But with biotechnology violating its 200-day moving average, the entire sector still in a freefall and stocks like AbbieVie failing to react to positive fundamental news, I am holding off on recommending that you get back into the sector just quite yet.

But I do see opportunities in the sector in the weeks ahead.

Portfolio Update

AbbVie Inc. (ABBV) fell 11.00% last week as the biotech sector continued a broad pullback. Ironically, the fundamentals of the company continue to improve, as ABBV presented positive test results last Friday for its up-and-coming blockbuster Chronic Hepatitis C program. Morgan Stanley also removed its ABBV price target last Thursday due to anticipated highly positive results on an upcoming cancer therapy referred to as ABT-199. ABBV will report earnings on April 25, before markets open. ABBV is now a HOLD.

Thermo Fisher Scientific, Inc. (TMO) lost 3.43%. TMO will report earnings on April 23, before markets open. TMO is a HOLD.

Micron Technology Inc. (MU) gave back 6.42% over the last week. Ratings firm ISI came out bullish on the semi-conductor sector last Friday, rating MU as a “Strong Buy” and setting a $30.00 price target. This price target represents a whopping 43% potential upside. MU is a HOLD.

GasLog Ltd. (GLOG) added another 3.44% over the past five trading days, spiking to a new 52-week high last Friday. GLOG also priced a new public offering of an additional 4.25 million shares of common stock last Friday at the discount rate of $23.75 per share. This additional capital will be used toward the purchase of three liquefied natural gas (LNG) carriers from the BG Group. GLOG is a BUY.

Nicholas Vardy

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