Our Opportunistic and Growth portfolios aim to capture excess returns, but not without some diversification. Limiting portfolio sizes to 20-30 stocks allows for diversification without getting to levels of diworstification. Hence, the portfolios have always had a few 'risky' biotech stocks. Based on the results of Savient Pharma (SVNT) the rewards have clearly outweighed the risks. See previous post. Oh why didn't I include SVNT in the Opportunistic Portfolio????
Regardless the Growth Portfolio has seen some nice out performance demand on the back of SVNT being up 33%. Also noticed that the other biotechs in those portfolios have been perking up of late. All 3 stocks have seemed alot cheaper then the risk involved. Rigel Pharma (RIGL) and Cephalon (CEPH) have seen bullish trading of late. Not being predisposed to investing in this sector, we just found the valuations too compelling.
RIGL is a clinical-stage drug development company that discovers and develops novel, small-molecule drugs for the treatment of inflammatory and autoimmune disorders, as well as muscle and metabolic diseases. Rigel's pioneering research focuses on intracellular signaling pathways and related targets that are critical to disease mechanisms. Rigel's productivity has resulted in strategic collaborations with large pharmaceutical partners to develop and market its product candidates. Current product development programs include FosD (previously referred to as R788), an oral syk inhibitor that is expected to enter Phase 3 clinical trials for rheumatoid arthritis in 2010, and R343, an inhaled syk inhibitor that is in clinical trials for asthma.
FosD has major drug aspirations and could lead the stock much higher. After watching the stock languish below all the major moving averages, its recently had the 50EMA cross over the 200EMA. This is a very bullish move.
CEPH is a global biopharmaceutical company dedicated to discovering, developing and bringing to market medications to improve the quality of life of individuals around the world. Since its inception in 1987, Cephalon has brought first-in-class and best-in-class medicines to patients in several therapeutic areas. Cephalon has the distinction of being one of the world's fastest-growing biopharmaceutical companies, now among the Fortune 1000 and a member of the S&P 500 Index, employing approximately 4,000 people worldwide. The company sells numerous branded and generic products around the world. In total, Cephalon sells more than 150 products in nearly 100 countries.
CEPH is a well known biotech trading at less then 10x EPS estimates. True, they have a major drug coming off patent soon, but they also have a ton of cash and potential for replacing that drug as well. This stock has not only recently crossed above the 200EMA but the 20EMA has passed the 50EMA for the first time in months. Both bullish signs that future moves are likely to be up and not down.
Diversification has again paid off by buying these out of favor biotech stocks and waiting for the market to recognize the inherent value at an unexpected time. Its possible that the Democrats losing power in November has lead investors back into this sector.
Disclosure: Long SVNT, RIGL, CEPH