The Key To Huge Biotech Profits

| September 12, 2011 | 0 Comments

Year in and year out a good number of top performing stocks come out of the high flying biotech sector.  And with good reason.  Biotechs are exciting!

These companies are working on treatments and cures for all kinds of diseases.  They use the latest technologies to identify compounds with potential to be the next blockbuster drug.  And the drugs themselves are often cutting edge scientific breakthroughs that work at the molecular level.

In other words, the biotech industry is where medicine and science fiction come together.

And when a biotech’s drug shows promise in clinical testing, the company’s shares often soar.

Just take a look at the gains racked up by the top performing biotechs over the last 12 months…

  • TrovaGene (TROV)… +413%
  • Genitope (GTOP)… +204%
  • ICAgen (ICGN)… +182%
  • Helicos BioSciences (HLCS)… +139%
  •  BioCurex (BOCX)… +93%

As you can see, biotech stocks have the ability to generate huge profits for your account.  And while investors in the above biotechs are pulling down profits two, three, and even five times their original investment, the overall market as measured by the S&P 500 is down more than 14% over the same time period.

No question about it… having a few biotechs in your portfolio can really juice your returns.

So why is it that so many biotech investors aren’t ringing the cash register?

The answer’s simple.  Too many biotech investors fall in love with their stocks.  They become mesmerized by the company’s technology or the drug’s profit potential or wildly optimistic analyst projections.  As a result, they fail to take their windfall profits off the table.

Here’s a perfect example…

Remember Human Genome Sciences (HGSI)?  I recommended this stock in my Penny Stock Breakouts investment advisory back in July 2009.  And I’ve talked about it a few times in prior Dynamic Wealth Report articles.

When I recommended it, HGSI was on the verge of publishing pivotal results from their phase 3 trial of lupus drug, Benlysta.  Earlier trial results showed the drug was safe and effective.  And the market potential for the first lupus drug in over 50 years was estimated at about $7 billion a year!

However, despite Benlysta’s obvious upside, HGSI shares were trading at bargain basement prices.  The shares had been decimated by the market meltdown following the 2008 financial crisis.  And when I recommended the stock, it was trading for just $2.88 per share.

Later that month, Human Genome published the Benlysta trial results.  And just as I expected, they were great!  Patients taking Benlysta showed a statistically significant reduction in their lupus symptoms.

As you might have guessed, HGSI shares soared on the news!

My subscribers found themselves sitting on gains of 334% almost overnight.  They made more than four times their money in just a few weeks time.  But I believed that huge move was just the beginning.

And I was right…

The shares took off and didn’t look back.  They moved higher and higher over the next few months.  And in April 2010, they hit an eight-year high of $34.49.

At that price, my subscribers were holding profits of 1,098%!

They had made more than 10 times their money in just nine months!

Everything looked great.  It was nearly certain the FDA would approve Benlysta.  And it seemed HGSI had nowhere to go but up.

But after hitting that lofty peak, the stock pulled back into a wide sideways trading range.  The shares bounced up and down for months between $20 and $30.

However, my subscribers were out of the stock with big gains before that happened.

After HGSI failed to break through the $35 level, I realized it was time to capture our huge gains.  So, I told my subscribers to exit the shares in November 2010.

Those who followed my advice locked in profits of 775%!

And it’s a good thing they did…

HGSI tried to break through resistance at $30 several times over the next seven months.  But it failed each and every time.  And then after the last failed attempt in April 2011, HGSI started selling off.

Investors began to flee higher risk investments like biotech stocks due to fears over the European and US debt crises.  And HGSI was no exception.

The shares quickly dropped through support at the $25 level.  Then they plunged through strong support at $20.

And that’s when the wheels fell off…

Down, down, down went the shares.  They dropped sharply through support levels at $18, $15, and then $12.  Investors were jumping ship as fast as they could.

And today, the shares are trying desperately to hold above $11.

Bottom line…

Biotech stocks are speculative and volatile.  Even shares of those with apparent locks on blockbuster drugs aren’t immune to shifting investor emotions.  You can be sitting on a huge fortune in a biotech one day only to see it disappear virtually overnight.

The key is you have to take profits when a biotech’s shares stop making new highs.  Once a high-flying biotech stops making new highs, it often enters a sideways trading range, or worse… it plunges as investors scramble to lock in their gains.

Don’t wait for the selling spree to begin.  Grab your profits when your biotech starts to run out of gas.  Otherwise, you can see your hard earned profits slip through your fingers.

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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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