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February's Best Bargain Stocks

By Dr. George Huang
Friday, January 29, 2010

Back in October, I highlighted five biotech stocks – each with upcoming FDA decisions – that could serve as ultra-profitable short-term trades.
 
A couple of these trades provided interesting setups. One of them was absolutely textbook. If you got in, you scalped a 45% profit in about five days.
 
I've got several more ideas that might do the same or better next month. Before I get to them, let me show you how these trades work. The idea is simple...
 
Biotech stocks face life or death at the hands of the FDA. Drug approvals can send stocks soaring 20%-30% in one day. A rejection, on the other hand, could slash 50%-90% off a market cap in an instant.
 
Trading biotech stocks ahead of FDA decisions is a sucker's game. It's almost impossible to consistently predict which way the agency will rule. But scooping up shares of biotechs after an FDA rejection is a low-risk way to generate monster returns.
 
Our 10-year backstudy showed this strategy generates 50% annual returns. And if you're lucky, like we were last time, you can see that in the space of a week.
 
Here's what happened last October...
 
Acorda, a New York biotech, had its multiple sclerosis drug under review by an FDA advisory panel. The meeting was scheduled for October 14. In the weeks leading up to the event, Acorda's stock traded hands around $23 per share.
 
But just five days before the meeting, the FDA aired some doubts about Acorda's drug. (Specifically, the agency expressed concern about its mediocre efficacy and its potential to cause seizures.) Shares crashed, dropping to around $16.
 
At those prices, investors had already priced in total calamity. Acorda had $8 per share in cash and another marketed drug worth an additional $3-$4 per share. So the downside risk was $4, in the worst case. The upside potential, on the other hand, was $10-$15. Now that's a fantastic risk-reward setup. (Plus, the need for new multiple sclerosis therapies is great, so FDA advisory panels tend to be easy on new MS drugs.)
 
Sure enough, the advisory panel voted in Acorda's favor. And Acorda shares rocketed up to $25 per share – a quick 45% gain.
 
"Great," you might be thinking. "That was last year. What can I do about it now?"
 
Well, I line up these types of situations on a monthly basis. With the right setup, any one of these can land you a fast, safe gain. Here's a look at what's on my trading calendar:
 
Date
Company
Drug
Target
Feb 9
Xenoport (XNPT)
XP13512
Restless Leg
Feb 12
Cadence (CADX)
Acetavance
Pain
Feb 26
Auxilium (AUXL)
Xiaflex
Hand Contracture
Mar 5
Amylin (AMLN)
Exenatide LAR
Diabetes
 
Each one of these FDA decisions will surely be huge stock-moving events. If Xenoport, Cadence, Auxilium, and Amylin receive FDA approvals, these stocks will achieve profitability over the next few years. That's a major milestone for developing biotech companies. But it won't make a great trade.
 
On the other hand, an FDA rejection for any of these companies will likely drop share prices 30%-50%. And in most cases, that'll be temporary. If I see that kind of haircut, I'll go bargain shopping. So should you...
 
Good investing,
 
George Huang




In The Daily Crux Recent Articles
Market Notes
Procter & Gamble surges... world's largest consumer-products company jumps 2.6% to new high.
 
Copper crashes... down 7% so far this week.
 
Greenback rallies 3% in two weeks to five-month high against a basket of six currencies... the dollar trade is on.
 
Earnings today... Chevron, Fortune Brands, Honeywell, Newell Rubbermaid.
Market Watch
Symbol Price
Change
52-Wk
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
Change
52-Wk
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Change
52-Wk
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%