Best of the Week
Most Popular
1. US Housing Market House Prices Bull Market Trend Current State - Nadeem_Walayat
2.Gold and Silver End of Week Technical, CoT and Fundamental Status - Gary_Tanashian
3.Stock Market Dow Trend Forecast - April Update - Nadeem_Walayat
4.When Will the Stock Market’s Rally Stop? - Troy_Bombardia
5.Russia and China Intend to Drain the West of Its Gold - MoneyMetals
6.BAIDU (BIDU) - Top 10 Artificial Intelligence Stocks Investing To Profit from AI Mega-trend - Nadeem_Walayat
7.Stop Feeding the Chinese Empire - ‘Belt and Road’ Trojan Horse - Richard_Mills
8.Stock Market US China Trade War Panic! Trend Forecast May 2019 Update - Nadeem_Walayat
9.US China Trade Impasse Threatens US Lithium, Rare Earth Imports - Richard_Mills
10.How to Invest in AI Stocks to Profit from the Machine Intelligence Mega-trend - Nadeem_Walayat
Last 7 days
Johnson Vs Gove Tory Leadership Contest Grudge Match Betfair Betting - 17th June 19
Nasdaq Stock Index Prediction System Is Telling Us A Very Different Story - 17th June 19
King Dollar Rides Higher Creating Pressures On Foreign Economies - 17th June 19
Land Rover Discovery Sport Tailgate Not Working Problems Fix (70) - 17th June 19
Stock Market Outlook: is the S&P today just like 2007 or 2016? - 17th June 19
US China War - Thucydides Trap and gold - 16th June 19
Gold Stocks Bull Upleg Mounting - 16th June 19
Gold Price Seasonal Trend Analysis - Video - 16th June 19
Fethiye Market Fruit, Veg, Spices and Turkish Delight Tourist Shopping - 16th June 19
US Dollar Gold Trend Analysis - 15th June 19
Gold Stocks “Launch” is in Line With Fundamentals - 15th June 19
The Rise of Silver and Major Economic Decline - 15th June 19
Fire Insurance Claims: What Are the Things a Fire Claim Adjuster Does? - 15th June 19
How To Find A Trustworthy Casino? - 15th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match - Video - 14th June 19
Gold and Silver, Precious Metals: T-Minus 3 Seconds To Liftoff! - 14th June 19
Silver Investing Trend Analysis - Video - 14th June 19
The American Dream Is Alive and Well - in China - 14th June 19
Keeping the Online Gaming Industry in Line - 14th June 19
How Acquisitions Affect Global Stocks - 14th June 19
Please Don’t Buy the Dip in Nvidia or Other Chip Stocks - 14th June 19
A Big Thing in Investor Education is Explainer Videos - 14th June 19
IRAN - The Next American War - 13th June 19
Boris Johnson Vs Michael Gove Tory Leadership Grudge Match Contest - 13th June 19
Top Best VPN Services You Can Choose For Your iPhone - 13th June 19
Tory Leadership Contest Betting Markets Forecast - Betfair - 13th June 19
US Stock Market Setting Up A Pennant Formation - 13th June 19
Which Stocks Will Lead The Cannabis Rebound? - 13th June 19
The Privatization of US Indo-Pacific Vision - Project 2049, Armitage, Budget Ploys and Taiwan Nexus - 12th June 19
Gold Price Breaks to the Upside - 12th June 19
Top Publicly Traded Casino Company Stocks for 2019 - 12th June 19
Silver Investing Trend Analysis - 12th June 19
Why Blue-Chip Dividend Stocks Aren’t as Safe as You Think - 12th June 19
Technical Analysis Shows Aug/Sept Stock Market Top Pattern Should Form - 12th June 19
FTSE 100: A Top European Index - 12th June 19
Gold Surprise! - 11th June 19
How Forex Indicators are Getting Even More Attention in the Market? - 11th June 19
Stock Market Storm Clouds on the Horizon - 11th June 19
Is Your Financial Security Based On A Double Aberration? - 11th June 19
What If Stocks Are Wrong About Interest Rate Cuts? - 11th June 19
US House Prices Yield Curve, Debt, QE4EVER! - 11th June 19
Natural Gas Moves Into Basing Zone - 11th June 19
U.S. Dollar Stall is Good for Commodities - 11th June 19
Fed Running Out of Time and Conventional Weapons - 11th June 19
Trade Wars Propelling Stock Markets to New Highs - 11th June 19
Best Travel Bags for Summer Holidays 2019, Back Sling packs, water proof, money belt, tactical - 11th June 19
Betting on Next British Prime Minister Tory Leadership Betfair Markets Forecast - 10th June 19
How Can Stock Market Go Up When We’re Headed Towards a Recession? - 10th June 19
If You Invest in Dividend Stocks, Do This to Double Your Returns - 10th June 19
Reasons for the Success of the Dating Market - 10th June 19
Gold Price Trend Analysis - Video - 10th June 19
US Stock Markets Rally Hard – Could Another Big Upside Leg Begin? - 10th June 19
Stock Market Huge Cosmic Cluster Ahead: Buckle Up! - 10th June 19
Stock Market Higher To Go? - 10th June 19
The Gold Price Golden Neckline… - 10th June 19
Gold Price Seasonal Trend Analysis - 9th June 19
The Fed Stops Pretending - 9th June 19
Fed Rate Cuts Soon; Bitcoin Enthusiasts Join Wall Street in Bashing Gold - 9th June 19
1990s vs. 2010s - Which Expansion Will be Better for Gold? - 9th June 19
Gold Price Trend Analysis, MACD, Trend Channels, Support / Resistance - 8th June 19
Gold Surges Near Breakout - 8th June 19
Could Gold Rally Above $3750 Before December 2019? - 8th June 19
5 Big Lies About Precious Metals Investing Exposed - 8th June 19

Market Oracle FREE Newsletter

Gold Price Trend Forecast Summer 2019

How to Spot the Next Hot Biotech Stock

Companies / BioTech Jun 13, 2012 - 01:39 AM GMT

By: Money_Morning

Companies

Best Financial Markets Analysis ArticleKeith Fitz-Gerald writes: It's not enough to understand long- term trends, today's investors need to have the ability to move quickly, especially when it comes to biotech stocks.

But here is what you need to know about biotech stocks: none of them are created equal.


For all their potential, bio tech stocks remain among the most challenging for investors like you to identify, select and earn money on.

However, with a little bit of the right guidance you can narrow your list to the stocks with the highest likely upside.

In fact, I've developed a five- point checklist of what I look at when screening biotech stocks that I'd like to share with you.

It may not be a road map. The biotech sector just isn't that easy and "x" almost never marks the spot.

But it is a great place to start if you are serious about separating the pretenders from the contenders.

Five Steps for Successful Biotech Stock Investors
As you begin to break down a potential stock consider the following as it relates to your decision.

1) Choose your niche.
Biotech is a big term and an even bigger sector. There are literally thousands of companies trying to make their move in everything from vaccines to nano-technology.

There's quite literally no way you can know everything, so stick to the parts of the sector you believe have the biggest potential.

For instance, I think some of the biggest innovations and profits will come from bio tech companies that link living systems with their digital counterparts.

So I tend to concentrate my biotech investments in companies that are exploring synthetic biology and computational bioinformatics.

To me it's a no brainer.

While there is no question that traditional bio tech will be big, over the next few years we will see the line blur very rapidly between what we need to live and how we actually live - aided by technology.

Admittedly, I have a rather selfish reason...

Alzheimer's runs in my family so in a way I'm chasing my own gremlins. You may or may not be chasing yours.

Point is, choose a niche you have an interest in and learn everything you can about it.

2) Stick to companies with the "right" kind of debt.
This one is tricky because obviously debt is a loaded word right now. With governments spending trillions on completely misguided bailouts, it's easy to forget that debt can also be used to generate profits, particularly in early stage companies.

When you think about it this makes sense.

The average medical tech company, for example, now spends tens of millions simply getting their drug ready for laboratory testing. Add to that millions more in human trials where maybe - just maybe - the drug will be approved.

Then there is the time. Often times the process takes a decade or more after the initial development.

As onerous as this sounds, keep in mind that it's against a revenue stream that could literally be in the billions. Come up with a blockbuster, and you can be in fat city for years.

What's a blockbuster? I define that as a drug or technology that could potentially generate sales in excess of a billion dollars a year.

But back to the debt. What you want to see in a biotech company is steady funding.

Conversely, companies that attract an initial investment then burn quickly through it without being able to gather more funding are one shot wonders. With companies like that you might as well go to Vegas.

But if the debt comes as part of an overall set of progress payments in exchange for specific developmental milestones, that's a very different case indeed.

Take MicroMet for instance. It's a story about what can happen when a bidding war develops around progressive developmental payments for a promising group of therapies---in this case cancer immunotherapies.

Amgen (Nasdaq: AMGN) ultimately swallowed MicroMet for $1.16 billion, handing investor s the opportunity to capture 61.83% in the process. I know, because my readers were among them.

3) Understand that volatility is part of the package.
Just like debt, understand that there is good volatility and bad volatility.

Biotech companies with bad volatility tend to move wildly yet are still generally correlated to the markets. This suggests that they really don't have too much going for them.

The true winners often move independently of broader market conditions. Not always mind you, but enough that you can screen for a kind of "anti-correlation" for lack of a better term.

This can be hard to do because many promising bio-tech companies have very small market capitalizations and even smaller daily trading volume.

It means you need to look behind the numbers to see if you can account for the price swings. Are insiders buying or selling? Or, has an institution stepped up with the sort of payment "plan" investment I've just referenced?

Many times the big pharma companies will set up a series of structured investments that keep them off the radar while simultaneously keeping values low enough to represent a solid risk/reward ratio.

Their thinking is sound. After all, why tip off the markets when that makes a sweetheart deal more expensive for them?

Be cognizant of the story behind the story.

4) Spread your risks.
Bio tech investors need to recognize that the odds are stacked against them from the get go. While that doesn't necessarily mean you will lose, the odds of winning depend on carefully placing your bets and maintaining an adequate book.

You really can't adequately play unless you're willing to put at least $5,000 on the table and be comfortable with the idea you may lose 90% of it before one of the choices you make pays off.

Michael Milken of Drexel Burnham Lambert famously used to use this strategy back in the late 1980s with junk bonds. He'd buy 100 of them knowing full well that 98% would blow up and that the 1-2% that hit would hit so big he could laugh all the way to the bank.

His compensation was more than $1 billion in a four year period-- - a new record at the time according to the NY Times.

It's worth noting that he had only four losing months in 17 years spent trading.

Today he's heavily involved in medical research presumably for the same reasons we are...because they hold great promise.

5) Look for the Jolly Roger
Recent venture capitalist estimates suggest that life sciences investments may fall to only $2.5 billion in 2012. This is because many VC funding sources have been burned over the past few years.

Instead of crying me a river, you can use that to your advantage.

VC firms are like a bunch of modern pirates in that they go where the money is. That's why you want to figure out where they've hoisted the financial equivalent of a "Jolly Roger."

Right now buyouts are hot. Limited partners--a.k.a venture capitalists--won't take on new investments unless they see a path to liquidity in five years or less. That includes a buyout by a major pharma or tech company or a licensing deal from one of the same.

In other words, VC firms want to identify their exit strategy before they take a stake and put up the funding.

It only stands to reason that if you can tie a specific VC to the areas in which you are interested in and even more specifically to a particular company then you've got a good shot at a picking a winner.

As for IPOs, they are not the magic ticket they used to be. In the wake of the botched Facebook IPO, the public has only learned to distrust the process.

At the end of the day though, for all its difficulties, investing in biotech can be one of the single biggest roads to profitability.

Just make sure you've got an idea where you're headed and a rock solid grasp on risk management.
The last thing you want to do is blow your money on a promise that really isn't there.

Source :http://moneymorning.com/2012/06/12/5-ways-to-spot-the-next-hot-biotech-stock/

Money Morning/The Money Map Report

©2011 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules