Taper Lite With Zero Interest Rates

The big FED Meeting with the Bernanke farewell concluded with “taper lite”, optimism on the economy and continued low inflation. The FED decision to roll back its economic stimulus was welcomed by investors boosting the S&P by 1.7% to a record 1810 and NASDAQ up 1.2%. Low interest rate policies will continue as jobs and housing data are still weak. However mortgage rates are expected to rise with long term rates rising and short term rates remaining low. As of midday trading today the markets are flat but NASDAQ is off 0.33%.  European markets are rallying on the FED news. Gold dropped below $1200 and the dollar is expected to strengthen. 10 year treasuries are moving to the 3% level at 2.93%. Oil ratcheted up 0.9% to $98. Metals are being crushed due to less stimulus.

Life Science Stocks Rally From Doldrums-But Still Near 2013 Tops

Biotech stocks have been weak lately but were revived along with the S&P. But the IBB is down 0.4% today to $218.44 and the more speculative, mid-cap  XBI is holding at $124 off its early December all time highs of $132 up 41% YTD.

Here is where we stand YTD on the “Fab Five” large caps, widely owned by all biotech funds and ETFs. All are on our focus list except CELG.

Amgen (AMGN $112) up 30%   $119.70  52 week high

Biogen Idec (BIIB $277.65) up 89.6%    $299  52 week high

Celgene (CELG $163.26)  up 108%   $173.80 52 week high

Gilead  (GILD $73.36)  up 100%    $76.11 52 week high

Regeneron (REGN $268.29)  up 56.8%   $319.83 52 week high

The four star rated Fidelity Select Biotech Fund (FBIOX $175) is up 59% YTD near its highs of  $180. About 50% of FBIOX holdings are in the above five stocks.

MO Stocks in a Correction

We wrote last week about the big  sell-off in the “beta babies”- mid-cap biopharmaceutical stocks that have been favorites of hedge funds.  Several have been totally busted down more than 50%  because of disappointing clinical news or just profit taking as valuations became excessive. Among the mid-caps with valuations in the $2-8B range valuations are hard to quantify because many products are in the clinical stage years away from approval and expectations that dilution will occur as equity is raised. The mid-caps on our biopharmaceuticals focus list are holding up well: Alexion (ALXN $128.90) up 37% YTD (new high) , Alkermes (ALKS $39.18) up 111 % YTD, Cubist (CBST $65.32) up 55% YTD,  Seattle Genetics (SGEN $38.51) up 66% YTD and Viropharma (VPHM) up 118% YTD (merged). Pharmacyclics (PCYC $102) is 40% off its high of $143 but still up 76% YTD. 

We see a breaking in the speculative fervor so we recommend that traders take a dose of caution when playng the momentum game. 2013 is a huge year in biotech with a lot of fast money around so expect some consolidation by February 2014. Trade microcaps only if it is your day job. Shorting was a dangerous trade in 2013 but we did call a couple as “paired trades” with longs: Aegerion (AEGR), Celldex (CLDX) and Medivation (MDVN) . We expect to see shorting opportunities among mid cap range market caps in 2014 and will post them as the opportunity arises.

Update 1 Puma Biotechnology, Inc. (PBYI $100.30) a newbie momentum play blew off to new highs today above $104 before settling down to the $100 mark.The stock was $40 in mid-November.  Stifel showed cojones in a downgrade this am before the blowoff. Puma has a market cap near $3B  and took off in early December after reporting Phase 2 clinical results from their cancer drug neratinib for Her-2 positive/HR negative cancer. Four analysts still have a buy rating on a stock with no revenues and FDA approval is probably three years away.

Investment Summary

  1. Take profits in big winners assuring 10%+ cash.
  2. Technicals matter more than ever.
  3. All portfolio picks are strong holds as biotech bull market is intact.
  4. Recent new buys were : NanoString (NSTG $12) and Vertex (VRTX $62.5).
  5. Caution on all momentum plays.




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