Biotech Stocks: Stem Cell Stocks Rallying On Court Decision

| May 2, 2011 | 0 Comments

Stem cell stocks have been on a roller coaster ride over the past nine months.  They’ve plunged… soared… plunged again… and now they could be gearing up for another climb.

Investors need an iron stomach, or a lot of Pepto Bismol, to survive this ride.

But in the end it could be well worth it.  These stocks are known to rack up huge gains in very short periods of time.  Just take a look at Aastrom Biosciences (ASTM)…

Back in late August 2010, you could have bought as many shares as you wanted for $1.45 apiece.  And I’ll bet you wish you had.  The shares went on a tear in November hitting a high of $4.45.

That’s a whopping 207% gain in just over two months!

Now, a fair amount of volatility is to be expected with stem cell stocks. Most of the companies are very small.  They don’t have treatments on the market yet.  And they’re all spending tons of cash developing cutting edge stem cell therapies.

These companies are speculative with a capital “S”!

But recent market action is beyond even the high volatility you usually see in stem cell stocks.

Here’s what happened…

Back in August 2010, a Federal District Court Judge in Washington, D.C. issued a preliminary injunction halting government funding for embryonic stem cell research.  This led to a big selloff in stem cell stocks across the board.

A good number of them falling 29% or more.

Then in September the Federal Appeals Court stayed the lower court’s injunction.  The ruling permitted federal funds to keep flowing to embryonic stem cell companies.  And stem cell stocks soared on the news.

Many of them climbed to new 52-week highs.

But the rally soon ran out of steam, and stem cell stocks declined for several months.  The Appeals Court ruling was only a minor victory in a longer war.

Then, this past Friday the industry got a much needed shot in the arm. The Federal Appeals Court overturned the District Court decision and lifted the injunction.

Once again, stem cell stocks are soaring!

And this just might be the beginning of longer term rally.

You see, the recent ruling is an important one.  Not only does it allow federal funding for embryonic stem cell research to continue, it shows the Court tipping its hand.  The Appellate Court made it plain they interpret the law as not prohibiting federal funding for embryonic stem cell research.

What’s more, the judges issuing the decision are conservatives.

They’re the ones most likely to be against federal funding for this kind of research on moral grounds.  If they don’t believe the law prohibits government funding, the lawsuit is likely dead in the water.

But the case isn’t officially over yet.

It’s going to continue in the District Court that issued the injunction. However, the Appeals Court has made it clear how they interpret the law.  Even if the plaintiff’s win in the lower court, they’re likely to lose on appeal.

The upshot is embryonic stem cell firms aren’t likely to lose their much needed federal dollars.

Thanks to this ruling the cloud of uncertainty hanging over stem cell stocks is starting to disappear.  And with it, the lid that’s been keeping stem cell stock prices down.

You know what that means… higher stock prices ahead!

A couple of larger biotechs working on stem cell therapies are Geron (GERN) and Celgene (CELG).  They’re a little less speculative than the pure play stem cells companies.

But if you want to grab a couple of companies focusing entirely on stem cell research, take a look at Advanced Cell Technology (ACTC) and StemCells (STEM).  Both have promising stem cell therapies under development for a variety of diseases and degenerative conditions.

Just keep in mind, these stocks are as speculative as they get.  The best approach is to buy a few shares of each one.  Cut your losers quickly, and let your winners run.

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Category: Stocks

About the Author ()

Robert Morris is the editor of Penny Stock All-Stars, an investment advisory focused on discovering small-cap and micro-cap stocks that are destined to become the market’s next Blue Chips. The Wall Street veteran and small-cap stock specialist is also a regular contributor to Penny Stock Research. Every week, Robert shares his thoughts with our readers on a variety of penny stock-related topics. In addition to Penny Stock Research, Robert also writes frequently for two other free financial e-letters, ETF Trading Research and the Dynamic Wealth Report. He’s also the editor of two highly successful and popular investment advisories, Biotech SuperTrader and China Stock Insider.

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