The New Bull Market has started in Biotech but don't invest in Biotech shares!
Whilst the major indices and stock markets worldwide continue to look weak, one sector has started to come out of a 10 year slump and is now breaking to a 52 week high and that's the US Biotech sector.
In the last month we have seen two major deals, Bristol-Myers made a $4.5 billion bid ($60 per share) for biotech ImClone, a 30% premium to its closing price. Swiss pharmaceutical group Roche also announced a buyout deal to takeover Genentech (DNA).
Some of you may recall the 1999 boom and then bust in Biotech. Similar to the DOT COM boom, many companies promised a great deal yet delivered nothing and they also burned through huge amounts of cash.
You have to understand that most biotech companies don't make money; it's a bit like smaller Oil or Gold exploration companies. When a biotech company does finally make a breakthrough they rarely stay independent for long, they either get taken over by a major pharmaceuticals company or have to partner with one.
All pharmaceutical companies are in desperate need to top up their ageing pipeline of drugs, rather than develop their own it's easier to buy growth which is why we could be in for a period of merger and acquisitions in the Biotech sector.
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To say I am bullish on Biotech is an understatement, its been a a long time coming but its finally starting to happen, however, I am not buying shares in any individual companies, that's just too risky. Instead I have bought ETFs that track biotech stocks. Also, this is a 12 to 18 month trade, however, based on the last boom and the fact that most have not picked up on this sector yet, I would say we could have a 100% plus profit on this trade. The two ETFs I have bought are SPDR S&P Biotech ETF (XBI) and the Nasdaq Biotech ETF (IBB). You can buy these through a broker that trades US shares or you can spread bet them by request.
XBI has 22 holdings including Amgen, Imclone, Genentech and Gilead Sciences. A full list and details can be found at: http://www.ssgafunds.com/etf/fund/etf_detail_XBI.jsp
IBB concentrates on Nasdaq listed Biotech stocks and is part of the ishares family of ETFs. A full list of holdings and details can be found at: http://us.ishares.com/product_info/fund/overview/IBB.htm
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