When the market is repricing risk and trying to calculate the new earnings multiples for stocks in a slower economy, what better place to be than in a sector that doesn't have earnings? This is a statement that use to go around a trading desk I worked on back in the late 1990's. It has a ring of truth to it. If the valuations of growth companies seem to be in a flux of readjustment, then why not look for companies that have the potential of hyper growth. Companies that if one product shows results can go up 10 fold in a matter of months. This might seem like a strange way to invest/trade, but this process happens. Rotation out of semiconductors, and other electronics based technology, and into biotechnology has happened in the past.
The chart below shows the Nasdaq Composite Index. In the lower pane is a ratio between the semiconductor companies and the biotechnology companies. As this red line slopes upwards, biotechnology is outperforming semiconductors. This coincides with market weakness, as usually as the semi's go, so goes the rest of the technology market.
Nasdaq Composite Index (click to enlarge)
Now using this spread ratio of the semis vs biotechs is not a guaranteed way to make money. It can just mean that biotech companies are only going down 5% while semiconductors are going down 10%. Losing less than the market might feel like a moral victory, but that is just mental masturbation. The idea is not only to outperform the market, but to make money.
One company that has shown up on a filter is Oncolytics Biotech Inc. Basically this company uses viruses to target cancer tumors. This company has been on a watch-list for a while due to it having clinical trials in various stages. The best news would come out of positive results from stage III trials, but with the fast paced advances in medicine, the stock could have made a large move in anticipation of stage II positive news.
The President and CEO, Dr. Brad Thompson, will speakat the 10th Annual Bio CEO & Investor Conference 2008 on Monday, February 11 at 9:30 a.m. (ET). The conference, which is expected to draw more than 1,000 biotechnology and life sciences investors, will be held at the Waldorf-Astoria Hotel in New York City on February 11-13, 2008. There is no way to know if this will be a stock moving event, but it could give some clues into the success of some of the companies ongoing clinical trials.
ONCY - Oncolytics Biotech Inc.
This chart shows that as ONCY broke above a small rising triangle, it has traded at a higher level on declining volume. This pattern is often a continuation pattern and could point to higher prices in the future. It is only a $2 stock, so while the move might be great on a percentage basis, the actually dollar amount most likely won't be much. This is however an exciting company, and their technology does sound like it could lead to other developments. It is worth reading about at the very least. The company webpage has a good not-overly-tech description of their approach. This is NOT a company that you load the boat on. It is most likely a 3-5 year cycle before anything they have will come to market. It is however an exciting area to follow, and if it does work, could pay off down the road. Oncolytics Biotech Inc. webpage.
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