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?