Sector Watch 070112 - Biotech

Since the new year 2007, there has been an obvious (to me at least) increased trading in biotech stocks sometimes FNKMR - for no known market reason (See Glossary). Here are a few reasons for this, which also meant to encourage caution:
- The Australian index is at all time highs despite recent corrections. This has been led by the resource boom of over 3 years followed by the steady growth of bank stocks. The market knows things have been over-priced and companies trading below their value are very difficult to find to invest in. Yet there is a continued growth in cash (eg from superannuation) looking for investment. Hence one of the sectors that have been shunned by main line investors is biotech. This is where money is starting to flow in.
- As an observer and analyst of biotech stocks over the last few years, I see the current increased trading to be exciting yet cautious. This beginning of a mini-boom in biotech stocks is going to make this sector even more volatile if recent trading pattern continues. The recent trading pattern in which some biotech stocks surge FNKMR - stocks are pushed up without any significant development in their product pipeline, changes in financial status or corporate activity.
- This serves to warn not to follow the market into biotech stocks. The serious biotech investor is encouraged to look at fundamentals (which is what this blogsite intends to provide) as well as technical analysis to see when to buy-in or sell-out.
- When an article in the news media picks up the trading patterns (of increased biotech stocks), you know that the pattern has already occurred and the news is history.
http://www.smh.com.au/news/business/biotechs-have-been-best-performers-since-1986/2007/01/11/1168105113648.html
- Don't be fooled - though the article claims that "biotech stocks are the best performers since 1986", it is true only if you picked the right one. From personal experience a gain of 200% or 300% is possible but so is a plunge to below 20%. Incidentally, the worst of my hi-tech/IT stocks have plunged to 0% or thereabouts, but I have not experienced such levels with biotech stocks. Once again - understand the company and its business and not follow the herd.

Below is a sample of stocks in my watchlist that have surged without good reasons:
CYN - 41c (intraday high 0.46 11Jan07) - between 32c to 36c last 3 months, even lower before that. Its involved in cord tissue banking business. I believe this to be a good stock and would buy if it is 30c.
CUV - from 48c to 81c from dec06 to Jan07 - it appears to be a turnaround story since 2006 but no specific news in Dec to warrant the surge. It develops compound agains UV-related skin disorders. May be covered by Tolhurst Noall.
BoD - from 9c Nov06 to 13c Jan07 - medical devices and implants

some of the stocks which have surged following product development are:
NRT - move to Ph3 Ovarian Cancer drug Nov06, US patent granted Dec06, from $2.60 to $3.10 within Jan 07
PYC - 30c Nov06 to 50c Dec06 - stroke drugs found new application
MBP - completes Ph2B obesity drug (results not fully analysed) - from 40c Oct06 to 1.10 Jan07 -
PLT - 10c Dec06 to 40c Jan07 - product (cervical cancer drug) penetrated China and South Korea - major turnaround for this embattled company which was 5c in Jul06.
MSB - clearance for Ph2 adult stem cell trials - $1.2 0Oct06 to $2.20 Jan06
PGL - $3.50 Nov06 to $5.50 Jan07 - announce liver cancer drug going to Ph3

The companies listed here may be overvalued or with the success of drugs factored into the price already.