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ALL-STAR ANALYSTS
Alex Hittle and Craig West
A.G. Edwards
SECTOR: Biotechnology
ANALYST'S PERFORMANCE
2001
All-Star's Return: 33%
Industry Average: -9%
2000
All-Star's Return: 50%
Industry Average: 25%
RECOMMENDATION
Human Genome Sciences
Buy.
Price per share (5/22/02): $16
Still a risky bet--but it has five drugs in the pipeline and heaps of cash on hand.
ANALYSIS
Biotech is one of those sectors that always seem to be brimming with opportunities--to lose money, that is. Back in 2000, people speculated that every genetic ailment would soon be cured. Shares of tiny firms skyrocketed--then plunged when the results were slow to materialize. Now that some companies are making dramatic progress, biotech is tagged with the stigma that it's too much fiction and too little science.
What's an opportunistic, iron-stomached investor to do? Meet the research tag team of Craig West and Alex Hittle, the bio-twins, as they're known at A.G. Edwards' home office in St. Louis. Since teaming together two years ago, the two have compiled a record that is unmatched by the 99 other biotech analysts.
Think of West as the right brain, with a background in molecular biology and an MBA. Hittle is the left brain, a history major with a master's in international relations and economics. The two joined A.G. Edwards as associate analysts in 1996 and became fast friends. When the firm decided to expand its biotech coverage, they argued that a team approach would allow for more in-depth research. The concept seems to have worked, in part because the two are so willing to share ideas, not to mention finish one another's sentences. Consider this conversation:
Hittle: "There's an investment opportunity out there right now ..."
West: "... and that's because of ..."
Hittle: "... value and visibility."
Yes, talking to Hittle, 39, and West, 35, can give a person a neckache, but they've got some compelling arguments. They believe that biotech investing has gone through three stages--exuberance, despair, and now opportunity to buy workable concepts at low prices. After two years of falling shares, many stocks are trading below the value of their cash on hand. Any drug that is successfully brought to market would be a boon to the stock's valuation. True, it's not like valuing General Motors, but then this is biotech, a sector in which investors are being asked to buy into something that might not be proven for a decade. The requirement, therefore, is to be careful.
Though they believe owning a basket of biotechs in a diversified portfolio is the safest approach, the team's top pick is Human Genome Sciences (HGSI), which both analysts own in their personal accounts. They insist that has not shaded their view. Because Human Genome, which has fallen from $77 to $16, has five gene-based drugs to treat cancer and infectious disease in the pipeline, and lots of cash, it's a stock to hold on to. No, the company hasn't made a dime. Nor do West and Hittle expect even a significant amount of revenue until 2007. Remember, West cautions, "biotech isn't about the next year, but figuring out where investors want their portfolio positioned for the next ten years."
From the June 10, 2002 Issue |
