30 Possible Pandemic Profit Plays: Bullish Biotech and Drug Stocks to Watch

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 |  Includes: ABAX, ACOR, ALKS, ALXN, AUXL, AVNR, AZN, BVF, CELG, CHTT, CRL, ENDP, FRX, GILD, HSP, ITMN, JAZZ, MBLX, MNTA, MYGN, NOVN-OLD, OREX, PFE, RDY, SVNTQ, VIVO, VRTX, VRX, WYE
by: Option Maestro

As stated on April 27 of this year in my blog post U.S. Futures Looking Dismal but Possible Swine Flu Profit Play, I gave you a look at how the media plays a role in helping stocks performance over a period of time. Since then the H1N1 Flu (Swine Flu) has been declared a pandemic. Although I don't expect the media to be reporting about the Swine Flu too much over the next week or two, unless something drastic happens (due to other stories that have crept up recently), this is still an issue we have to deal with, and don't think drug companies have stopped the R&D process on finding another pill.

I was doing my nightly research and I noticed an unbelievable amount of stocks from the healthcare sector (Biotech and Drugs) which have been strong the last 30 days (Swine Flu has been a popular topic in the media over the past 30 days, but note that all of the companies in this article are not trying to develop a vaccine for the Swine Flu, but are in the healthcare sector), and are still demonstrating strength on the technical level. The ratio used in evaluating these stocks is called the Bull:Bear ratio, which is defined on my blog post Bull Bear Ratio Defined. I don't like using just one piece of software so I go to another source which is Investor's Business Daily (IBD) as they give a very nice composite rating for these stocks. For details on how IBD ranks these stocks check out my blog post One of My Methods to Finding Bullish Stocks.

So on with the list of stocks. I have put together a list of stocks below with both the Bull to Bear ratio as well as the IBD composite rating. The data in the table below is the most recent data to date, but changes on a daily basis. All stocks are ranked alphabetically.

Company Ticker IBD Rating Bull: Bear Ratio
Abaxis Inc ABAX 83 11:1
Acorda Therapeutics Inc ACOR 49 12:0
Alexion Pharmaceuticals Inc ALXN 98 10:2
Alexza Pharmaceuticals Inc ALXA 28 10:1
Alkermes Inc ALKS 38 10:2
Auxilium Pharmaceuticals Inc AUXL 31 11:1
Avanir Pharmaceuticals Inc AVNR 92 13:0
Biovail Corp BVF 87 13:0
Celgene Corp CELG 91 11:1
Charles River Laboratories International Inc CRL 53 8:4
Chattem Inc CHTT 78 7:4
Dr Reddy Labs Depository Receipt RDY 95 13:2
Endo Pharmaceuticals Holdings Inc ENDP 78 10:1
Forest Laboratories Inc FRX 51 11:2
Gilead Sciences Inc GILD 98 9:2
Hospira Inc HSP 95 11:0
InterMune Inc ITMN 22 12:1
Ista Pharmaceuticals Inc ISTA 95 13:0
Jazz Pharmaceuticals Inc JAZZ 74 10:1
Meridian Bioscience Inc VIVO 84 10:2
Metabolix Inc MBLX 23 11:1
Momenta Pharmaceuticals Inc MNTA 19 14:1
Myriad Genetics Inc MYGN 93 10:3
Noven Pharmaceuticals Inc NOVN 98 14:0
Orexigen Therapeutics Inc OREX 58 12:1
Savient Pharmaceuticals Inc SVNT 51 12:1
United Therapeutics Corp UTHR 98 10:1
Valeant Pharmaceuticals International VRX 99 13:1
Vertex Pharmaceuticals Inc VRTX 55 13:0
Watson Pharmaceuticals Inc WPI 91 12:1
Click to enlarge

From the list above the stocks I like the most and believe have a good chance of being winners in the near future are Valeant (NYSE:VRX), Noven Pharamaceuticals (NOVN-OLD), and Ista Pharmaceuticals (ISTA).

Strategies I'll be using

Strategy #1: Valeant showed up in this list and was a stock I've been bullish on since April 27 as you can see from my blog post linked to in the first paragraph. I think this stock has some upside left and I am going to be more aggressive and speculate by being the buyer of call options on this stock. I am currently looking at the September 25 Calls which can be purchased for less than 10% the cost of the stock price at close, therefore a 10% move up in the stock will give me my money back and a return. Not to mention this stock is trading above 26 which puts this call option already in the money by $1.18 a share. This stock has nearly doubled since I first blogged about it, and it could go down just as fast. This is the reason I may be purchasing calls in the money versus the common shares of this stock.

Strategy #2: I was thinking of using the buy/write option strategy for this stock, however If I purchased the stock I am afraid I would not be able to write out any options on it, as the options on this stock are almost illiquid. For this I would use the simplest strategy of all, and buy common shares. I would look to get in on weakness though, such as a 7%-10% pull back. Once I hold the stock I will monitor the options market to see if a decent premium can be made on heavier (more liquid) options volume.

Strategy #3: ISTA more than doubled since my blog post on April 27, but is still strong in both of my ratings obtained. The stock made a new 52 week high June 26, 2009 at 5.53 before closing at $4.69 a share. This stock looks like it wants to continue the breakout, and could very well do so. I am looking to accumulate common shares of this stock, as options are not issued on this stock. Again I will look to purchase shares on weakness, such as a 7%-10%.

Disclosure: No positions