Friday, December 19, 2008
I looked out at a sea of shell-shocked faces... no emotion, no interest, no curiosity... just blank stares.
Earlier this month, my publisher hosted its annual conference in Hong Kong. The meeting at the Four Seasons was the most somber I've ever attended. The audience and most of my colleagues were bearish to the point of paralysis.
But even as I reeled with jet lag, I was impatient to get to get to the podium. I have three huge ideas to get your portfolio back on track in 2009, and I couldn't wait to share them...
1. It's a great time to buy biotech's biggest names.
As my colleague Dr. George Huang explained last month, the iShares Nasdaq Biotechnology Fund (IBB) has outperformed 99% of ETFs this year. It's down about 15%, compared with a 40% drop on the S&P 500. Biotech drugs are immune to hard economic times. Patients need drugs from these companies or they will die. So biotech will continue to outperform more vulnerable industries.
IBB holds a chunk of Big Biotech – profitable companies that are growing sales and generating tons of cash. Top companies like Novo Nordisk (NVO), Biogen (BIIB), and Genzyme (GENZ) are trading for less than five times sales (about 40%-50% less than they traded for one year ago). IBB is the easiest way to play the sector that will lead the market recovery in 2009.
2. It's an even better time to bet against the market's worst.
As I wrote last week, the credit crunch is finally weeding out biotech's weakest players.
These days, sketchy management teams with crappy drugs won't be able to woo naïve investors into spending big bucks on medical pipedreams. Once these worthless biotechs get the boot, the market will allocate funds to well-run outfits with worthy products. This will push up stock prices sector-wide (see No.1). It'll also give us a rich opportunity to short undeserving biotech outfits.
3. We can make easy money following Big Pharma's cash.
With capital tight, the drug industry is trying to stretch research dollars as far as possible. So drugmakers are turning to contract research organizations – or CROs – in droves. CROs handle everything from early lab and animal tests to new drug applications at the FDA. CROs are 30% more efficient than in-house research.
The top players in the CRO business have more work than they can keep up with – including a $9 billion backlog for the top three players. The CRO industry is growing 12%–15% per year. But shares are priced for death...
In the past six weeks, publicly traded CROs are down an average 35%. As I told the audience in Hong Kong, such carnage is our opportunity. I believe 30%-50% gains are possible in 2009 by holding a basket of top CRO players in the industry. Start with the industry leader in early-stage drug development – Covance (CVD).
After ticking off my best money-making ideas, I figured I'd be mobbed with questions. Nope. Nobody took notes during my presentation, let alone asked for more details.
But I wasn't fazed. To me, that's the most bullish endorsement I could've hoped for.
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