The Most Hated Sector in America
By Dr. Steve Sjuggerud
April 27, 2007
"Biotech is the most hated sector in America," George Huang told a roomful of investment analysts last week.
The room was half asleep. It was so quiet, you could have heard the sound of crickets chirping.
"The new technologies coming out now will revolutionize medicine," George told us. More yawns and watch checks.
"Instead of taking pills a few times a day, you'll take them once a week, or once a month…"
George was talking about all kinds of medical revolutions and how to make money from them. But nobody cared…
It's funny, back in 2000, if you mentioned anything about "biotech revolutions," investors were on the edge of their seats. Back then, George could have played an April Fools' joke on us, and made up a disease and a cure, and investors would have gone for it.
Back in 2000, nothing you said about energy could have avoided yawns and watch checks. But today, coal is sexy. And biotech is old hat. Go figure.
George Huang, if you don't know, works on the two medical investment services at Stansberry Research: The Medical Investor and Phase 1. If you haven't heard of these investment services, it proves my point. Nobody cares about biotech now.
But quietly, almost secretly… biotech stocks are booming. The AMEX Biotech Index (^BTK) just hit a new high – an all-time high. It broke out above its highs from 2000.
Cheap, hated, and uptrend… That's our investment recipe. And we seem to have it in biotech now.
George told us biotech is the most HATED sector in America. Yet the AMEX Biotech Index is in an UPTREND, having just broken out above its all-time highs. And biotech stocks are still CHEAP, as I'll show.
We saw a similar setup to today back in early 1990… and in 1994… and in 1998. Let's take a look…
The AMEX Biotech Index bottomed around 50 in 1990. Then, in less than two years, it quickly shot up to around 250, for a gain of roughly 400%. Biotech stocks were a great buy back then (on a price-to-book value basis), and they rewarded investors who got in cheap. The bust came, and biotech stocks lost nearly two-thirds of their value. Investors gave up, until the next rally came around…
From early 1994 to early 1996, less than two years, biotech stocks soared again. For example, shares of Amgen (Nasdaq: AMGN) ran from $5 a share to $15 (split-adjusted).
Biotech shares treaded water for a few years… and then, finally, the big boom came. The AMEX Biotech Index rose from roughly 100 to roughly 800 in two years – from September 1998 to September 2000. So $10,000 invested in the biotech stock index would have turned into $80,000 in two years!
For the last seven years, biotech stocks have gone nowhere. Today, shares of Amgen, for example, trade for less than they did for much of 2000.
Meanwhile, Amgen's sales last year were four times what they were back in 2000. The business has grown so much that the company's profits in 2005 were greater than its sales back in 2000.
Investors haven't paid attention. They're yawning at biotechs.
Meanwhile, shares of Amgen are close to being as cheap as they've been in recorded history.
Honestly, I don't know much about medical technology. I lean on guys like George Huang to do the heavy lifting for me. All I know is biotech stocks appear to be cheap, hated, and in an uptrend. We've seen these things three times in the past (1990, 1994, and 1998), and each time, these things were good for a few hundred percent in two years.
So I've recently added to my biotech recommendations in my newsletters.
George and his research partner Rob Fannon tell me that Amgen is unexciting, compared to all the other things they're following in their services.
With biotech stocks being cheap, hated, and in an uptrend, now is an excellent time to try their services out…
Good investing,
Steve
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