Friday July 15, 2011
Marc Lichtenfeld, The Oxford Club Communique
One market theory holds that biotech investors should sell in June after the annual meeting of the American Society of Clinical Oncology (ASCO).
Looking beyond that, our studies suggest that the best time to buy the sector is one month after the conference. Here's our favorites.
After ASCO, things tend to quiet down. There are fewer institutional investors learning about these companies, getting excited and ultimately buying their stocks
So you might think the summer and beyond is a tough time to make money in the biotech sector. Not so fast…
It turns out that the biotech sector actually does pretty well in the months following ASCO -- if you wait just a little bit.
Over the past 10 years, biotech stocks fell an average of 1.84% in the month following the conference. However, three months afterward, biotech stocks rose 4.95%. Six months out , biotech stocks jumped an impressive 8.1%.
And if you wait one month for the usual “sell the news” dip after the conference, your average six-month return is 12.9%!
So, contrary to popular belief, it appears that the best time to buy the sector is one month after the conference – or in other words, right about now.
If you’re looking for a diversified way of playing the sector, I suggest the iShares Nasdaq Biotechnology (IBB), which is the most liquid of the biotech ETFs.
It’s a bit top heavy, as the top 10 holdings make up 46% portfolio. Its top holdings are Amgen, Celgene, Teva Pharmaceutical, Gilead, Vertex, Pharmasset, Alexion, Biogen Idec, Illumina and Regeneron.
The remaining 54% of the portfolio is comprised of 117 other companies, offering the investor diverse exposure to the sector. Of the names listed above, my three favorites are Teva, Vertex and Biogen.
Teva Pharmaceutical (TEVA) is the dominant generic drug company in the world and shows no signs of stopping. It’s expected to continue to have double-digit annual earnings growth for the next five years.
Vertex Pharmaceuticals (VRTX) just received approval for its hepatitis C drug, Incivek. Many analysts (including myself) expect it to be a blockbuster drug – meaning it’ll generate over $1 billion in annual sales.
Biogen Idec (BIIB) is a blue-chip biotech company with three well-known drugs (Tysabri, Rituxan and Avonex) and a deep pipeline. Its multiple sclerosis drug,
Tysabri, has been a life-changer for many patients. So much so that when the FDA temporarily took it off the market over safety concerns, patients’ rights groups demanded Tysabri be made
The FDA relented and Tysabri generated $900 million in sales in 2010, up 16% from the year before. The drug should generate over $1 billion this year.
Regardless of which biotech investment you choose, history is showing us that now is a good time to go against conventional thinking and start looking for ideas in this sector.
Learn more about this financial newsletter at The Oxford Club Communique.