| Biotech Rally Imminent
The stock market's tremendous rebound
in the past month has lifted almost every sector. However, small
cap biotech companies have been designated with the dubious distinction
of being investors' loss leaders. Investor psychology dictates that
if small cap biotechs are declining in a rally type environment such as
the one we are in now, then there must be something inherently wrong in
all the companies of that domain. Thus, companies are sold to irrational
levels.
The SmallCap Digest has found
a biotech company that has a tremendous risk to reward ratio. The
company's market capitalization, when considering the corporate development
that is happening right now, makes this one of the best biotech values
we have seen in quite some time.
Small biotech companies have been
punished because many are considered to be a one trick pony. Almost
all of them burn cash like there's no tomorrow (which for some companies
will actually be the case). It is unfair to lump hundreds of companies
together but perception is reality. That certainly doesn't mean there
aren't good opportunities out there but investors have become a bit more
reluctant to jump in.
The trials (or lack of properly conducting
FDA trials) and tribulations of Imclone (IMCL)
have
really put a damper in the hearts of biotech investors. However,
not everything in the biotech world has been negative. Large biotech
companies have actually been doing pretty well.
Looking at the AMEX Biotech Index
(BTK) below, you will see that the index has made some nice gains
The BTK index is comprised of the largest biotech companies
such as Genentech (DNA),
Idec
Pharmaceuticals (IDPH),
and Human Genome Sciences (HGSI)
just to name a few.
The index has recently broken through
the 50 DMA (day moving average) which has been a tough resistance
level. All indications are pointing to the BTK moving up and testing the
200
DMA very shortly.
Large biotechs are doing well
but when will their smaller brethren begin to see some gains? The
answer is very soon. Why? The reason is that at some point
the large biotechs will begin to offer less potential gains due to the
recent run up. Small cap biotechs on the other hand have been beaten
down and thus far ignored in this most recent rally.
Investing in this sector has always
been about jumping on the bandwagon and all it takes is for some catalyst
to occur. As the large biotechs begin to receive higher valuations
relative to the smaller companies, their stock becomes a rich currency
for making deals. Consolidation in the industry will create a buying
frenzy where investors will chase all the small biotech companies.
In our next edition the SmallCap
Digest will be introducing our subscribers to a very exciting biotech
company. Fortunately for our readers, the company has a real disconnect
between its market capitalization and potential leaving. This undiscovered
biotech play has some world class collaborations as well as a breakthrough
drug that should be entering Phase III trials very soon.
Be sure to check your inbox for this
new edition.
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