[ market commentary ]
A few months ago, we noted that the first tier had VIOLENTLY diverged from the third- and MM-tiers.
I hoped, sincerely, that the third-tier would do some catch-up. It did a smidge, but the major biotech event was a violent correction in top-tier.
Poof! -- it (the correction) is gone.
And, as the top tier has run away again, the rally-marking event has been the incredible strength of the second-tier and a remarkable rally in genomics and certain other "sponsored" companies.
So, what have we got today? We have a new class of company. We have a company with a market cap pushing $4 billion that has no product. We have second-tier gemisching with first-tier, and it's not because first-tier has come back to the pack.
Third-tier is more undervalued, in relative terms, than it was even a few months ago when the discrepancy was godzillaesque. But, OTOH, I'm a third-tier investor, and I know first-hand that third-tier is doing just fine.
What does this mean? It means that absolutely irrational investors are in control of the market.
It would be great if we could draw graphs at SI. In 1991-1992, we had rational valuations but an irrational distribution of enthusiasm covering all companies. The flapping mouths will tell you that '91 was a biotech bubble. In fact, the companies with "real" technologies were quite fairly valued.
Today, we have the same situation, except that we have products up our wazoooo and real companies with sales personnel and the whole bit. But, in addition, we now have the companies that lost sponsorship or that are pursuing a discipline that is out of favor. These are the companies that are still tainted by the last six years of biotech malaise, and some of them are damn good. Neurology was out of favor, but look what happened to NBIX when people woke up. It's still undervalued, on either a relative or an absolute basis.
AMGN has a market cap of $46 billion. MLNM plus LKST comes in at $4.4 billion. Is M+L worth one tenth of AMGN? No question -- yes, it is.
But, is that the correct question to ask? If yes, then quality third-tier companies should, if there's any justice, triple tomorrow.
Sure wish that was the correct question to ask. It isn't. The correct question to ask is: "when are the momentum-driven issues going to return to rational valuation, and will that return hurt the stocks that are still undervalued?" |
