Update-1 …After 1.94% NASDAQ Sell-Off
All three market indices got crushed today with a downdraft attributed to ending of QE, rising i rates in 2015, a rising dollar and just plain profit taking. A 3.8% hit on Apple (AAPL) did not help support the QQQ which also holds many large cap biotech stocks.The healthcare sector was down only 1.35% compared to 2.22% for technology. Energy and materials continued their losses down 1.75% and 1.93% respectively. Our core recommendations in large cap biopharm also took a hit down with the S&P and Biogen Idec (BIIB) got hit the hardest down 3.73%. The FBT was down 1.92%. Many small cap speculative biotech stocks were whacked severely but among the winners today are : Agio (AGIO), Celldex( CLDX) and Endocyte (ECYT) in the green.
A major market indicator the Russell 2000 ETF (IWM) was down 1.63% and is now off 4.53% YTD. The smaller cap weighted biotech ETF (XBI) recovered a bit from earlier losses to be down 1.84% but this ETF is still off the February top.
Caution on new buys. Hold large cap biotech. Cash position in life sciences portfolio as recommended earlier should be 15-20%.
S&P 1982.77 NASDAQ 4508.7 IBB 272
Biotech Stocks Positioned to Hit New Highs in Q4
The biotech bull market is intact despite the huge sell-off from the February bubble. Life science stocks made a huge comeback in August but have been stalled in September near the 2014 February top. Stock picking is harder and the action is choppy so avoid trading in small cap or MOMO stocks. Nonetheless the sector should move higher once the macro clouds clear.The impact of the Ukraine conflict on the European economy remains a major concern.
Rayno Large Cap Biopharmaceutical Stocks Remain Core Holdings
If you are not a trader who follows biotechnology daily then the safest play is the Rayno Large Cap Portfolio or just one ETF, the First Trust NYSE Arca Biotech Index with ticker FBT up 32% YTD. The Rayno large cap biopharma portfolio consists of seven stocks including FBT : Alexion Pharmaceuticals (ALXN), Amgen, Inc. (AMGN), Biogen Idec (BIIB), Gilead Sciences (GILD), Regeneron Pharmaceuticals (REGN) and Roche Holding Ltd. (RHHBY). This portfolio is up 11% over 3 months and 22.75% YTD. The leader in the group is Gilead Sciences up 40.5% YTD.
The FBT is much less volatile than other ETFs such as the XBI SPDR S&P Biotech ETF, for example over the past 30 days the FBT is up 4.5% compared to 1% for the XBI; over 3 months the FBT is up 13% compared to 1.7% for the XBI.
We removed Abbvie Inc. (ABBV) from the portfolio due to the inversion merger with Shire PLC (SHPG) because of short term issues as well as a shift in the product mix. This could be a positive but makes ABBV/Shire more difficult to analyze.
Rayno Mid Cap Biopharmaceutical Picks
Review our complete list of stock picks including several which were acquired. Our top five mid-cap picks are: Alkermes Plc (ALKS), Cubist Pharmaceuticals (CBST), Pharmacyclics, Inc. (PCYC), Seattle Genetics (SGEN) and Vertex Pharmaceuticals (VRTX). This portfolio is up 9.8% over 3 months 11% YTD. The leader in the group is Vertex up 41.3%.
Small Cap Picks for Q4
We thought this would be a good time to add more speculative smaller cap stocks for a fourth quarter rally but most of them have been quite volatile and more suitable for trading: Celldex Therapeutics (CLDX), Fibrocell Science Inc. (FCSC), Karyopharma Therapeutics (KPTI)and Pacific Biosciences(PACB). Karyopharma (KPTI) is up 8% over one month. The iShares Russell 2000 ETF (IWM) hit a double top in July near 120 and is now at 111 near its low for the year of 108. If the Russell remains weak this would be a cause for concern.
Achillion (ACHN) has been on of our big winners YTD up 238% YTD and we recommended some profit taking recently.The stock has soared on rumors of a takeover because of its HCV pipeline of four clinical stage drugs. ACHN remains on our focus list.
Speculation in clinical stage companies is still active despite a tired market. Avanir Pharmaceuticals (AVNR) is up 95% in one month after a clinical study for a drug that is designed to treat agitation in Alzheimer Disease patients reported positive clinical results. And Tekmira Pharmaceuticals Corp. (TKMR) continued to soar (now up 79% in 3 mos.) after the FDA issues a “framework” to allow Tekmira to test subjects with confirmed or suspected Ebola virus infections.However speculation is limited to major R&D or clinical breakthroughs rather than the rampant MOMO behavior of Q1 2014.
We will add new small cap picks in the coming weeks.
Rayno DX and Tools
We will review our portfolio in October but recently we recommended some profit taking in Exact Sciences (EXAS) and Illumina (ILMN) both have which have been huge winners YTD and over the past three years. Here is a summary of Rayno Dx and Tools stocks from 5/22/14. Many of these stocks are treading water but if you held Illumina (ILMN) you are up 51% . Other winners YTD are : Abaxis (ABAX) up 30.3%, Alere (ALR) up 10% and Hologic (HOLX) up 8.9%. Small cap diagnostic/tools stocks with sketchy revenues and earnings (PACB, SQNM) are hard to trade so be cautious.
- Investors should own a portfolio of large cap biotech stocks.
- FBT is still our top pick and beats mutual funds; use XBI only for small cap rebalancing and momentum trades.
- A more diversified portfolio would be the 7 large cap biotech stocks mentioned above with five mid-cap stocks.
- Dx and Tools stocks are mixed and in a downtrend unless otherwise stated.
- A fourth quarter rally is expected to new highs.