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Strategies & Market Trends : Gorilla and King Portfolio Candidates

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To: techreports who wrote (48986)	11/17/2001 12:44:31 AM
From: Bruce Brown	Read Replies (1) of 54805

...what are your thoughts on the new biotech companies that use the gnome or proteins (HGSI..mlnm)? They are not cheap at over 5B dollars with PSR quite high..then again i guess AMGN and EBAY had high PS ratios when they came public and have done quite well.. Although I have followed along somewhat at the Fool by reading all the articles concerning the space as well as the Rule Breaker's choice to invest in a portion of the 'game' - it is not an area I follow very closely because of the learning curve and risk/reward ratio. If one is going to take the time to invest in the sector of biotechnology, the learning curve of all the medical implications, target markets and practical application which will lead to earnings is more than most want to dive into. However, companies that actually have earnings certainly are easier to interpret than those filled with hopes and promise, but not enough product to turn a profit at this point. I fear a lot of forward thinking to the tune of a decade or more is priced into many players and like the first wave of biotechnology which created a bubble in the 80's, this current wave will only have a few boats floating off into the sunset compared to the number of vessels currently in the water. Sounds like technology games, right? However, since I'm not up to the learning curve and reading the map of biotechnology, I do invest in the sector via a specialty sector fund hoping the managers of that fund have been through the required learning curve and understand more than I would ever hope to in terms of where investment dollars should go and at what prices. The portfolio they run maintains a diverse mix of established and emerging companies throughout the biotechnology sector. Outside of that fund, I am a long time shareholder of Amgen (a boat that floated out of the first wave of biotechnology speculation) and another family member (who follows biotechnology quite closely) is a shareholder of Immunex - neither stock is a 'cheap stock'. Mix in a few holdings in drug companies and health care and I feel I am 'exposed' enough in the sector with the proper percentage allocation. I would imagine there will be some winners over the longer run of the smaller biotechnology companies, but the learning curve is steep and a lot of hope is priced in the shares. No disagreement that the sector receives a lot of investor attention and interest - as well as trader and technical analysis interest. Unless I was willing to go through the learning curve, I simply don't know how to "invest" in the space without having professionals help me via the sector fund. There are a couple of other sectors where I feel the same and maintain sector funds. i do believe valuation matters and i don't like the idea of buying expensive stocks, but then again...many thought Aol was expensive in early 1998 or Microsoft was expensive, ect.. And they are still expensive today. Microsoft has spent a good portion of time this year and the latter part of last year at 1998 share price levels. I don't think it is correct to think we will see the type of mania that launched all technology boats from the autumn of 1998 to March of 2000. Although plenty would argue we've just been in a mini-mania since September 21. We may as well back the 1998 - 2000 out of the charts and focus more on the market position and opportunity for such companies to grow into their multiples over the next few years - or what it is that is going to drive their earnings to justify the premiums being paid. BB

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