Monday, October 02, 2006

 

Sector Spotlight: Biotech

One of my core biotech positions, GILD, acquired MYOG today-- for a 48% premium to Friday's close. Although I like MYOG, what the fuck are the execs at Gilead thinking? Now, because of the scale of the deal, short sellers/arbitrage players are going to nail GILD-- until the deal closes.

As for my other biotech position, DNA: Well, there is a lot to be happy about, if you owned this stock over the years. Moreover, with today's FDA approval of Rituxan and good data out of Avastin, I feel strongly about DNA's prospects going forward.

Biotech stocks are very risky investments. With my money, I don't have the medical background to really dig in my heals on a story, attempting to find the next MRK or DNA. It's simply too risky.

Instead, I buy leadership companies, with good pipelines and excellent track records-- typically big cap.

As for today's markets, I feel the ISM numbers coming in below consensus hurts. However, it wasn't weak enough to ring alarms or anything. Therefore, I do not believe the market will nose dive today, just trade moderately lower.

Finally, ahead of earnings season, keep a close eye on analyst downgrades. I seriously doubt those fuckers will head into 3rd quarter earnings with "Strong Buys" attached to every high multiple tech stock. Look for cowardice within the convictionless analyst community.

NOTE: Today, AAPL caught a downgrade and RACK got kicked in the groin by First albany-- reiterating underperform.

NOTE II: Please take the new "Fly Survey," on the left hand side of the page. Are you net long or short stocks?

The following biotech stock have mojo:

MYOG +47%
BMRN +10.3%

HEPH +10.2%
NEOL +9.4%
INCY +4%

DNA+ 2.4%

Comments:
Man I am seeing a shitload of companies start to warn. Do you think that this could catch the massive long side off guard and send the "Record High" cheerleaders running for the exits? I am decently long but I want to only add to very undervalued longs right now and start putting on the short side. What do you think? I know it is hard to get the read up here but I guess that is how reversals whether temporary or long term happen. Lots of indecision. By the way I like the energy valuation now and I know you had been mentioning VLO.
 
I believe there is a good chance that 3rd qt. numbers will disappoint a lot of investors.

Generally, I try to avoid trades on earnings-- too risky.

However, considering the big moves in tech, it may be a good trade to sell short, prior to earnings.

Look for LRCX to set the tome, early.

As for oil: VLO should do well as the price of crude stabilizes. If crude starts to ramp, then so will VLO's profit margins.
 
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