Over the last 12 months, there has been some serious wealth creation from the stock market. Now things are pulling back, because global economic reality has finally usurped the artificial enthusiasm regarding the third round of quantitative easing (QE3). (See “Warning: QE3 Rally Is Now Over.”) As we know, not all industry groups have experienced the same levels of business conditions this year. But as a stock market sector, some of the strongest wealth creation over the last 12 months has come from biotechnology stocks. The NASDAQ Composite Index, representing a lot of pure play technology stocks did well this year, but the NASDAQ Biotechnology Index did far better.
As you know, I’m not an advocate of equity investors taking up new positions in this stock market. I think the current stock market pullback has more legs, and rightly so—things aren’t so great in the world and the stock market is worried about the upcoming fiscal cliff.
I like a number of dividend-paying blue chips, but I’d hold off initiating new positions. But for risk-capital, speculative investors, one of the best areas of the stock market remains biotechnology stocks, and what I think speculators should be doing now is identifying the strongest names within the sector in anticipation of an attractive entry point for traders.
In doing so, all you need to do is pick and choose among the biotechnology stocks that compose the NASDAQ Biotechnology Index. All the best up-and-coming companies are there, and no matter what happens to the rest of the stock market or the global economy, there’s big money to be made from pharmaceuticals. Institutional investor participation within the sector continues to be high.
One of many biotechnology stocks producing massive wealth over the last two years is Alexion Pharmaceuticals, Inc. (NASDAQ/ALXN), a hugely successful company selling only one approved drug. This, my friends, is a biotechnology stock you want on your radar screen. The company’s stock chart is featured below:
Chart courtesy of www.StockCharts.com
Two years ago, Alexion was trading around $36.00 a share, up from $22.00 the previous year. While the rest of the stock market gyrated with an upward trend, Alexion appreciated to its all-time record high of $119.54 a share in the first week of October this year. Among large-cap biotechnology stocks, Alexion is one of only a handful that have developed a special drug to help a unique need.
The company has other drugs in development, but right now, it is selling “Soliris,” which helps in the treatment of paroxysmal nocturnal hemoglobinuria, a rare, life-threatening blood disease. According to the company, Soliris was approved in the U.S. and European Union (E.U.) in 2007, and then in Japan in 2010. I won’t go over the company’s financial results, but its revenue and earnings growth over the last few years have been extremely robust.
With the broader stock market in a meaningful consolidation (perhaps a full-blown stock market correction), Alexion’s share price is down. So far in this biotechnology stock’s history, it has accelerated in price after every meaningful retrenchment on the stock market. This is a track record I like to see.
Biotechnology stocks are not for everyone; they are fraught with high investment risk and are typically just within the purview of institutional investors. But you don’t have to be a medical doctor or scientist to be a good trader of biotechnology stocks, and that’s how you can approach the sector. Biotechnology stocks come with an inherently high degree of uncertainty, but then again, what doesn’t in this market?
One of the Best Areas for Profit in this Trader’s Stock Market was last modified: January 9th, 2014 by Mitchell Clark, B.Comm.
Mitchell Clark is a senior editor at Lombardi Financial, specializing in large- and micro-cap stocks. He’s the editor of a variety of popular Lombardi Financial newsletters, including Micro-Cap Reporter, Income for Life, Biotech Breakthrough Stock Report, and 100% Letter. Mitchell has been with Lombardi Financial for 17 years. He won the Jack Madden Prize in economic history and is a long-time student of equity markets. Prior to joining Lombardi, Mitchell was a stockbroker for a large investment bank. In the... Read Full Bio »
Forecasts Aug. 30, 2015
Immediate term outlook:
The bear market rally in stocks that started in March 2009, extended because of unprecedented central bank money printing, is coming to an end. Gold bullion is up $1,000 an ounce since we first recommended it in 2002 and we are still bullish on the physical metal.
Short-to-medium term outlook:
World economies are entering their slowest growth period since 2009. The Chinese economy grew last year at its slowest pace in 24 years. Japan is in recession. The eurozone is in depression. With almost half the S&P 500 companies deriving revenue outside the U.S., slower world economic growth will negatively impact revenue and earnings growth of American companies. Domestically, America’s gross domestic product grew by only a meager 2.3% in the second quarter, which will negatively impact an already overpriced equity market.
Estimates Aug. 30, 2015
Trailing 12-month EPS for Dow Jones companies (Most Recent Quarter)