With the buyout of Brush Biotech 15 name Anacor Pharmaceuticals (ANAC) announced today by Pfizer (PFE), one of the key conditions is falling in place for biotech to get out of the doldrums.
The pieces have not all fallen into place (I’ll explain some others to expect in a sec), but this is a major step in the right direction. Biotech looks like a buy here.
ANAC is getting taken over for about $99.50 a share. That makes it a five bagger since I first suggested it in Brush Up on Stocks at $20 on March 31, 2014. I reiterated it ten times along the way including several times at about $52 a share in March and April 2015.
Today I’m suggesting that subscribers roll ANAC funds into a fresh Brush Biotech 15 stock that looks quite attractive in a pullback. And I took my profits in my ANAC position today, too.
ANAC has been a great performer for us. And it confirms the effectiveness of my unique six-point system for selecting biotech names, which has put us into 25 baggers like Pharmacyclics (PCYC) and many other 5-10 baggers since I launched my stock letter in June, 2010. Of course, they don’t all work out. But a few big multi-baggers like these can make up for a lot of mistakes, as investing great and former Fidelity Magellan Fund manager Peter Lynch used to say.
Big picture, the ANAC buyout confirms what I was telling subscriber on April 19, 2016 when I suggested they add to ANAC in a pullback to $60 a share: A lot of biotech looks too weak, and cheap, in the current pullback. And smarter people than me, like the top managers at Pfizer, are noticing. More importantly, they are confirming this view with buyouts. A few more of these, which are likely, could help turn negative sentiment around in biotech and get it into a sustained uptrend.
Here are some other factors that make biotech look attractive.
* Sentiment is quite weak, and near an extreme negative. Various biotech stocks and indices are trading down to their 200 day moving averages, which they have bounced off of before. Professional tweeters are serving up doom and gloom again which they often do near bottoms for biotech. This is often a good anecdotal sentiment indicator, and I have my favorite people to follow in the twittersphere as contrarian indicators since they are consistently the most negative, and most wrong, right around bottoms in biotech. That’s what we were seeing again last week just ahead of the big move up in biotech today.
* We’re entering a potentially bullish phase for biotech because conference season is around the corner. The American Society of Clinical Oncology (ASCO) meeting, for example, will happen in early June.
* We could get big Food and Drug Administration (FDA) product approvals at any time.
* There was a significant uptick in insider buying at biotech names back in March, and then some more along the way. It’s usually a good sign for a sector when smart insiders, by my system, are going up against the market in a selloff. That’s what we’ve had in biotech over the past few months.
* With Hillary Clinton all but sealing the deal on the Democratic nomination, she’ll move towards the right in her campaigning against Donald Trump, since she’ll no longer be pulled to the left as much by Bernie Sanders. This could be bullish for biotech because it might mean that regulation of drug pricing will move off the table a little bit as a presidential campaign issue. It’s always been kind of a non-issue, since drugs represent such a small percentage of overall health care costs. If advocates really want cost reductions, they should look elsewhere. Plus drugs are expensive to develop, costing well over $2.5 billion each on average if you factor in all the failures, which you have to do of course. Logically, prescription drugs are not the best place to look for cost reductions, but politicians do not always follow logic, and this is a lightening rod issue with voters so it could come back.
The bottom line: That gets me to my final point here. Biotech is notoriously volatile, and it won’t be straight up from here. But if you are a long-term investor with a multi-year time horizon, this is probably a good time to buy the group, especially if you have favorite names that look weak, or a system for finding them that works. For more on the biotech stocks that best match my system right now, or to see what biotech stock I just added to the Brush Biotech 15 in its current weakness, you can subscribe here. Good luck in the markets!
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