Biotechnology Stocks: Are You Grabbing Your Share Of These Profits?

| May 9, 2011 | 0 Comments

It’s no secret the US stock market has been on a tear since the latter part of August 2010.  After suffering an 18% correction last summer, the market has put together an impressive eight-month run.

As of Friday’s close, the S&P 500 Index is a stunning 29% higher than it was in late August.

And it’s been an extremely broad-based rally.  Nearly every industry has seen stock prices move higher.  As the old saying goes, a rising tide lifts all boats.

But some industries have posted bigger gains than the rest.  One in particular has outperformed the S&P 500 over this time by a solid 38%.

Which industry am I talking about?

If you’re thinking biotechnology, give yourself a pat on the back.  This high-flying industry has been soaring even more than usual during the market rally.

As of Friday’s close, biotechs are up an amazing 40% since this rally began.

The chart shows the daily performance of the SPDR S&P Biotech Index ETF (XBI).  As you can see, this ETF has generated big gains for investors over the past eight months.  Unfortunately, a good number of investors have missed out on this easy money.

You see, most investors are too afraid to invest in biotech stocks.  One reason is they’re intimidated by the science and medicine.  Let’s face it, these companies appear to be speaking a totally different language than the rest of us.

Another reason is the volatility in biotech shares.

Since most biotechs are small companies with little to no revenue or earnings, their stock prices tend to make wider than average moves up and down.  Most investors just don’t have the stomach for these kinds of price swings.

While I understand the concerns, I can’t help but feel disappointed for these investors.  They’re missing out on terrific trading opportunities.  And more importantly, they’re giving up any chance of cashing in on a monster biotech winner.

The truth is these investors are needlessly short-changing themselves. They have an opportunity to trade biotechs without taking on all the risk these stocks entail.

All they need to do is sign up for my Biotech Supertrader investment advisory.  I’m not one to toot my own horn, but my subscribers have raked in some big winners in recent months.

Back in March 2011, we captured gains of 104% in Achillion Pharmaceuticals (ACHN) in just two and a half months’ time.  Then in April we rang the register several times.  We booked profits of 72% on Adeona Pharmaceuticals (AEN), 43% on GTx (GTXI), and 54% on Ironwood Pharmaceuticals (IRWD).

No doubt about… we’re on a roll!

But I’m not telling you about this to merely brag about our success.  I have a bigger point to make.  The point is don’t listen to the naysayers who claim it’s too risky for individual investors to make money in biotech stocks.

There are ways to trade biotechs without taking on more risk than necessary.

One strategy we use frequently in Biotech Supertrader does just that.  In a nutshell, we buy shares in small biotech companies trading under the radar of most investors.  This strategy often allows us to establish positions at bargain prices.

But not every low priced biotech has huge short-term upside potential. The big profits are made in those biotechs with near-term positive catalysts.

My favorite catalyst is top-line results from a phase 2 clinical trial.  You’ll often see these biotechs surge in value over the weeks and months leading up to the trial results.

Here’s a perfect example…

Back in June 2010, I recommended Adeona Pharmaceuticals (AEN) to Biotech Supertrader subscribers.  I was excited about the company’s experimental product for Alzheimer’s disease.  You see, AEN was developing a zinc-based medical food they believed could halt the progression of Alzheimer’s.

Right now there is no cure for this devastating disease.  About 5.3 million Americans are living with Alzheimer’s currently, and nearly half a million new cases are diagnosed every year.

Clearly, this is a disease area with mega-blockbuster potential.

At the time I recommended AEN, the stock was trading for just $1.13 per share.  And over the next six months, the stock traded as low as $0.75. Subscribers had a nice window of opportunity to get into AEN at bargain basement prices.

The key to the trade was the upcoming catalyst.

AEN was scheduled to publish results from their phase 2 trial in early 2011.  I knew the shares would rally going into these results.  You see, if the results showed the drug was helping to halt Alzheimer’s progression, AEN would have a potential blockbuster product on their hands.

And, true to form, traders drove up AEN share prices going into the announcement.

As you can see, AEN took off in early December.  That’s when traders started moving into the shares to get positioned for the phase 2 trial results.  Of course, our positions were already well established by that time.

What happened next is no surprise… the shares soared.

By early April, the stock hit a high of $2.25 per share.  We were sitting on gains of anywhere from 99% to 200%!

Then the company did something very unusual.

They rolled out a secondary stock offering to raise cash.  Now biotechs do stock offerings all the time.  What made this one strange was its timing before the release of the highly anticipated trial results.

Usually, when a biotech expects their shares to soar on good news, they’ll wait to do a stock offering until after the news is released.  That way they get the highest possible price for the shares.

Doing the stock offering before the results raised a big red flag in my opinion.  So, rather than wait for the results, I told my subscribers to lock in their gains.  I was concerned the results were not going to be good.

And they weren’t…

As you can see, the shares plunged on the news.  If we had held onto our shares, we’d actually have a loss on our position now.  By getting out early, we were able to lock in our hefty gains.

This is just one example of how average investors just like you are making big bucks trading biotechs.  If you’d like to supercharge your own portfolio, I invite you to read this report.  Don’t miss another opportunity to make the kind of money you’ve always dreamed about.

 

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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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