January Rally on Schedule for Small Cap Biotech Stocks

Three Picks we made on December 14:

Albany Molecular (AMRI $2.89) Up 16%

Astex Pharmaceuticals (ASTX $1.94) Up 19%

SeraCare (SRLS $3.00) Up 1.7%

Three healthcare conferences in San Francisco next week Jan. 9-13 should provide news and perhaps another boost for biotech stocks:

J.P.Morgan Healthcare Conference,Biotech Showcase and the OneMedForum.

In a lackluster market today the biotech ETF IBB ($105.64) is up 0.73%.


Away from the  Sell-Off and Euro-Gloom 

It is  a tough day today in this roller coaster market as many assets are selling off:

  • The Euro dipped under $1.30 at 1.297 as risk is off and money is flowing into the dollar-risk is off with Euro-zone worries are in the forefront. The 2011 January low is 1.2870. Italy sold five year bonds at 6.47% up from 6.29% in previous auction Nov.14.The Ten Year US TSY Yield is 1.93%.
  • Gold continues its free fall down $43 to $1587, below its 200 day moving average of $1619.Many hedge funds were short and several theories abound on the trade such as a weak Euro and a need for central banks to raise capital.
  • Commodities have fallen the most in 11 weeks as silver is down 8.4%, copper down 4.9% and crude down 4.5% to $95.67 spurred by “Macro-Malaise”.

With the NASDAQ off  1.5 % and the Dow and S&P down almost 1% it is time to be a contrarian and look at stocks that may be lost in the fray within the life science sector. The bellwether ETF IBB ($98.67) is still up 5.67% YTD with a July high of $110.

The small cap biotech market has been hit hard with traders and investors pre-occupied by macro-malaise and year-end tax selling of losers. The biotech winner list (see Rayno Biopharmaceutical Portfolio) has been dominated by large cap biotechs as tools and diagnostics have been weak.

Three small cap, speculative, biotech stocks that are good prospects for a January rally are Albany Molecular (AMRI $2.49), Astex Pharmaceuticals (ASTX $1.63) and SeraCare (SRLS $2.95). AMRI is trading at a market cap of $75M about one third of book value and less than 50% of 2011 revenue.ASTX is trading at  a market cap of $153M, 70% of discount to book and 2011 revenue forecast of $65M. The stock is weak due to uncertainty surrounding the acquisition of Astex by the predecessor Company SuperGen. SeraCare is trading at a market cap of $59M, 1.4X revenue and has a book value of $38M. SeraCare recently lost its CEO and is an acquisition candidate. Technically SRLS is recovering but AMRI and ASTX are still in a bottoming process.

We will try to provide more details regarding these companies in December.

Disclosure: We have very small positions in all of these stocks.

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