Biotech Stocks Showing Strength Among Speculative Market Action

Biotech Stocks Showing StrengthWith indecisive stock market action, biotechnology stocks continue to show their speculative strength. It’s a market sector that continues to be very strong, albeit highly speculative.

Of course, where there’s growth, there are also higher valuations and many of the large-cap biotechnology and pharmaceutical companies are richly valued.

Three Biotech Stocks with Momentum in a Slow Market

Bristol-Myers Squibb Company (BMY) is one of these richly valued companies. The stock just leapt strongly higher on new approval of its “Opdivo” treatment for lung cancer. Since its March 2009 low, Bristol-Myers has more than tripled on the stock market, and it’s still yielding close to 2.5%.

While some large-cap pharmaceutical stocks can be considered investment grade, the majority of biotechnology stocks can be extremely volatile and would fall under the category of risk-capital investments only.

The more sizeable, liquid biotechnology stocks often trade like mature blue chips. That is, they don’t do much on the stock market until a material event causes either a tremendous dip or rise in the share price.

Previously in these pages, we looked at Biogen Idec Inc. (BIIB), which has been a market darling over the last several years. This powerhouse wealth creator has done a good job keeping its operational momentum. Wall Street earnings estimates for Biogen this year and next are still being revised upward.

This particular security can be a very good issue for traders. The stock is highly priced, of course, and likely would benefit tremendously from a share split.

The company’s full-year 2014 revenues grew 40% to $9.7 billion, while GAAP net earnings to the company grew 58% over 2013 to $2.9 billion. Naturally, the Street is paying for this sales and earnings growth, but then again, it usually does.

Biotechnology stocks are not for the faint of heart. Because so much institutional/speculative money is devoted to the sector, trading action is often robust. But this doesn’t mean that investment risk is minimized; on the contrary, wealth can disappear at a frenetic pace with these kinds of stocks.

The NASDAQ Biotechnology Index has been on fire since the middle of 2010. The U.S. Food and Drug Administration (FDA) has been approving new drugs at a record pace and industry profits are lofty.

Of the many biotechnology stocks available for consideration, Alexion Pharmaceuticals, Inc. (ALXN) has recently taken a break from its typical capital appreciation on the stock market. This stock, which has proven to be a tremendous momentum play, has taken breaks before. Usually, periods of consolidation are followed by another burst of buying.

This company’s big drug is “Soliris,” which is a treatment for a rare blood disorder. Alexion should cross $2.5 billion in sales this year. Street earnings estimates have been moving up for this year and next.

Positive Market Environment Supporting Biotechs

Of course, it’s been a tremendously positive fundamental backdrop for speculating in biotechnology stocks: there have been lots of FDA approvals, tons of cash within the industry, and very low interest rates. (See “Biotechs the Hottest Sector at This Time?”)

For the investment risk, monies allocated to this risk-capital sector should be small in the context of a portfolio. With this in mind, there is likely to be continued momentum in the biotechnology sector this year as corporate outlooks remain robust.