PB,
Valuation and subsector shift
As usual, PB has put his finger on a very significant issue. Given that biotechs are so hard to value, peer comparisons have to be a big component of valuation.
An extreme example of this recently was a valuation study of the inuts that compared market caps and showed they fell along a "nice" curve. The study claimed this meant that the valuations were not totally random as was (is) commonly believed.
More usefully though, these "hot subsectors" are a good way to make money. Even if you don't believe in CRA, it's not that hard to buy INCY after CRA soars. I did this to some extent, but I'm kicking myself that I didn't do it big time. Of course these ideas are all easy in retrospect - it's not quite so easy to buy INCY if you think CRA is just a few-day wonder, and buying INCY and shorting CRA leaves you open to the gorilla crowd rushing into the "new gorilla."
Here's the INCY and CRA chart for the past 30 days - note that CRA clearly moved first, and INCY caught up later.
techstocks.com
Incidentally, I also had thought that MEDX rotted while ABGX soared. I think this may partly have been an optical illusion though, based on MEDX's lower stock price. Here's a 50 week chart showing they actually pretty much moved in sync:
techstocks.com
If you go back to 1998, then it is indeed true that ABGX soared while MEDX rotted.
Right now genomics and antibodies are hot, with some platform stocks like ABSC following after. These hot subsectors tend to stay hot for a while. Over the last few years you could have done a lot worse with the following simple algorithm: Find the hot subsector and buy the leaders. For a long time the hottest subsector was simply the first tier, but now attention seems finally to have shifted.
Peter |
