Key Trends To Watch: April Update After Correction
We provided a bull market model on January 9 to track performance of life science stocks prior to the "bubblicious" run up in January and late February. Now that we have corrected 15-20% on the indices and much more on high flier momentum stocks it is time to survey the damage and find at least a trading bottom.
Trend #1 Large Cap Biopharmaceuticals
These stocks are trading at or near their early January levels so we need to have these market leaders bottom before we get another leg up. Regeneron (REGN $286) is still up 3.9% YTD, Alexion (ALXN$146.60) is up 10% YTD, while Celgene (CELG$138) -not on our focus list- is down 18% YTD.
Trend #2 Emerging Mid -Cap Growth Stocks in Immuno-Oncology
Many widely held, mid-cap growth stocks are in this group and many high fliers are down 20-30% from their 2014 highs. On our focus list is Pharmacyclics (PCYC $99.74) off 5.7% YTD, and Seattle Genetics (SGEN $41.30) up 3.4% YTD; not on our list are Biomarin (NASDAQ:BMRN) off 9.45% YTD, Clovis (NASDAQ:CLVS) up 9.1% YTD, Incyte (INCY$49.38) down 2.25% YTD, Medivation (MDVN $60) down 5.22% YTD, and Puma (PBYI $81) down 21.7% YTD. We would avoid any new buys in the mid-cap group for now.
Looking back at our October 9 Valuation Model which compares these stocks to Onyx Pharmaceuticals which Amgen (NASDAQ:AMGN) bought for $10B, we see that no M&A deals have been struck in this market cap range and do not see buy-outs as a market driver at the higher mid-cap $7-10B range. Product pipeline news will drive stocks.
Trend #3 Small Cap Speculative Biopharmaceutical Stocks
We would avoid this category for now as our latest two picks Ariad (ARIA $7.28) and Achillion (ACHN $3.08) have traded down and are too volatile. These stocks are for day traders and speculators but should see many good days ahead.
Trend #4 ETFs and Mutual Funds
We are looking for a buy signal here primarily from Fidelity Select Biotech Fund (FBIOX $184) which is up 1.5% YTD after peaking at $228 last February and down 15.6% over last month. FBIOX holds all the major large caps. Both of major ETFs -IBB, XBI -are flirting with an intermediate bottom but have one failed rally since the downturn.
The more stable healthcare ETF XLV ($57) was very choppy in March but is still up 3% YTD after hitting a high of $60 in early March. It has a large weighting in leading biotech stocks.
Trend #5 Life Science Tools and Diagnostic Stocks -Will Be Covered In New Post
- Caution still rules, no bottom confirmed, watch technicals.
- Review the Rayno Portfolio Picks for Q1 Performance.
- Cash levels should be high at least 20%.
Disclosure: I am long GILD, XLV.