This Sector Is About to Explode
By Dr. Steve Sjuggerud
Tuesday, June 30, 2009
Four triple-digit rallies and one quadruple-digit rally – that's the record for biotech stocks going back to 1983.
The biggest rally started in the late 1980s (+1,347%). The next biggest started in the late 1990s (+646%). Here in the late 2000s, the time is right again.
Actually, the time was right last year... Measured by price to sales, biotechs had gotten just as cheap as they were in the late 1990s before the great boom. And investors weren't paying any attention to the sector – a pre-requisite for future massive gains. But the stock market crunch spared no sector, and the 2008 boom was over before it started.
That's good for us: Biotech stocks are once again as cheap as they were 10 years ago. Back then, the index ran from around 100 to around 800 in about a year and a half. Yes, $10,000 invested would have turned into $80,000 in less than 18 months.
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Biotechs Are as Cheap as Before the Great Boom
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Then biotechs went flat – for almost a decade. The AMEX Biotech Index is lower today than it was nine years ago. It's not that the companies have been duds. Sales have been increasing dramatically.
The price-to-sales ratio of the stocks in the AMEX biotech index went from over 20 in the dot-com bubble to a bottom of around three today... which is as cheap as it gets.
I can't guarantee the index will soar eightfold in 18 months, of course. I'll be the first to admit I know next-to-nothing about biotech. All I know is nothing can compete with an old-fashioned rip-roaring bull market in biotech. So I want to be on board when it arrives.
Right now, all the signals are in place in a way we haven't seen since the late 1990s.
For the first time this year, biotech stocks are both cheap AND they're in a confirmed uptrend (the AMEX Biotech Index is up 30% since March). Biotech stocks are also ignored... Clean energy and government spending are hogging the headlines.
Cheap, ignored, and an uptrend... those are the three things we look for.
The AMEX Biotech Index hit 700 on Friday. New highs for the year are just two percent above that... Technical traders might drive biotech stocks higher if they can reach those levels.
Me? I'm content to buy here. The low for the index is about 550. So your downside is less than 25% if you buy here and cut your loss at a new low. Meanwhile, your upside (as we showed in a DailyWealth last year) is over 500% in two and a half years.
Upside: 500%. Downside: less than 25%. Those are my kind of odds...
If you're looking to speculate, biotech stocks offer a cheap, ignored opportunity that's just kicked into an uptrend. Check 'em out.
Good investing,
Steve
P.S. The easiest way to get into biotech stocks is through one of the many exchange-traded funds available. Type "biotech" into the search box at www.etfconnect.com and find one that meets your needs... |
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AN EXTRAORDINARY DECLINE IN VOLATILITY
It's just like 2007 again... at least for volatility's sake.
Late last year, Wall Street's popular measure of investor fear – the Volatility Index, or "VIX" – skyrocketed to record highs. The VIX measures the price investors are willing to pay for protective options... the price they're willing to pay for insurance.
For much of the past five years, the VIX bobbed around the sleepy 20 level, which indicated folks saw blue skies ahead for stocks, bonds, and commodities. The great asset crash of 2008 caused the VIX to soar to 40... then to 50... then to 60... then to an astounding "we're scared to death" reading of 80.
But as you can see from today's chart, investors are getting comfortable again... the VIX has receded into the mid-20s. It's an extraordinary decline in just seven months. Most investors see blue skies ahead again. If there's a blip in the government's giant cap and trade boondoggle or the unprecedented "funny money" experiment, those skies will turn black in a hurry...
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China risks frittering away its stimulus spending on speculation in stocks and real estate, reports said Monday, citing economists who say surging bank loans risk inflating risky asset bubbles.
The comments by prominent economists came as Shanghai's benchmark Composite Index hit another high for the year, gaining 1.6 percent, or 47.10 points, to 2,975.31. The index has gained more than 60 percent since the beginning of the year.
About 20 percent of bank lending is going into stock speculation, and another 30 percent or so is going into the property market, state-run newspapers cited Wei Jianing, an economist with a Cabinet-level think tank, as saying.
– Newsmax
China's Shanghai Composite Index has rallied 61 percent this year, the world's third-best performer, after plunging a record 65 percent in 2008. The nation's property sales jumped 45.3 percent to 1 trillion yuan in the first five months, the statistics bureau said June 11, compared with a 19.5 percent decline for all of 2008.
...Peng Wensheng, an economist at Barclays Capital in Hong Kong, said that the rally in stocks and property was to be expected given the size of the stimulus spending.
"Some people are concerned about this so-called speculation but in reality with such a large monetary expansion if asset markets did not respond something must be wrong," Peng said. "There's a risk of a very excessive rally in the asset markets but we are not at that point yet."
– Bloomberg
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A great article on Iceland's destruction
Michael Lewis explains why this 300,000-person nation imploded.
Tempted by the billions of dollars being made all over the world, Iceland transformed itself from a fishing economy into a financial economy. The entire country essentially became a hedge fund. |
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