Risk-Off -Stay With Large Caps

In case you missed it the speculative frenzy in biotech stocks is over for now but there are always trading opportunities for the short and long term. We recently posted our Q1 Rayno Life Science update for biopharmaceuticals and the large cap stocks are holding up well in a choppy market. Abbvie (ABBV), Alexion (ALXN), Alkermes (ALKS), Cubist (CBST), Gilead (GILD) and Roche (RHHBY) are all doing well since the lows of mid-April. They are all strong holds.

Our mid and small cap picks are much more volatile and although they are above 2014 YTD lows we urge caution before adding new positions. We are currently in a “risk-off” market due to earnings disappointments and a sell-off in high fliers such as Amazon (AMZN), Netflix (NFLX) ,Tesla (TSLA), Twitter (TWTR) etc. Within the biotech sector you can pretty much assess risk by tracking the ETF XBI which is off 7% over 30 days and at $123 off its mid April lows. But biotech stocks are in the red today.

To appreciate the magnitude of the sell-off in biotech momentum stocks have a look at selective mid and small cap stocks since 2013 highs: Aegerion ( AEGR $32.67) off high of $101, Celldex (CLDX $12.33) off high of $38.84, Galena (GALE $2.56) of high of $7.77, Infinity (INFI $8.72) off high of $40 and Puma (PBYI $64.58) off high of $143.65!  The model to predict clinical trial outcomes and product revenues five years in advance for new drugs apparently has not been discovered.

We are cautious even making new picks at this time until the market settles down. Of course day traders can always find enough vol to make a buck long and short.

We will review the Rayno diagnostic and tools sector after all the earnings for Q1 are in. Many diagnostic stocks are stabilizing so we expect to re-iterate 2014 buys. Illumina (ILMN $140) looks good for the long term but we would wait for dips to buy more.Within our current life science portfolio our best pick would be Hologic Inc.(HOLX $24.35), a resructuring play with improved earnings. HOLX has been a pick on our focus list at $21.66.

Disclosure: long ABBV,FBIOX, GILD,HOLX, RHBBY. Trading shorts on a daily basis.

%d bloggers like this: