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Beaverton, OR–
June 9, 2003 The ASCO (American
Society of Clinical Oncology) meeting adjourned on June 3rd
and Wall Street’s appetite for biotech stocks still has not been
satisfied.
Now the question
is when will the healthy, but necessary correction come to the
biotech sector? Our answer is definitely "not yet." It
looks like by July before the energizer bunny starts to run out of
gas, which will give the market a breather until the coming fall
season. As a reminder, medical conferences follow the academic
calendar and then pick up again when school starts. So we envision
a short-term correction as news flow becomes a trickle, and the
pullback will more than likely be relatively light and
short-lived. So a technical pause is in the cards, like maybe a
5%-7% pullback for most of the leading stocks would be very
helpful to sustain the biotech rally.
The market has
gotten ahead of itself by chasing stories, but there is, in fact,
fundamental improvement in the outlook for the biotech business.
Wall Street is anticipating a slough of new products to hit the
market in 2003/2004 and biotechs will be rewarded with
earnings/profits.
At the same time,
the past weeks has shown that hundreds of fund managers are under
invested, chasing stocks that have already made 30%-50% moves.
Apparently, there is still a mountain of cash on the sidelines
ready to take the market higher and biotech stocks are riding the
wave. Even though it seems there is no down day for biotech
stocks, there should be reason for concern and we don’t advocate
chasing stories for overbought stocks. This is not a run away
train so there will be plenty of stops along the way to pick up
more passengers. Therefore, exercise some buying discipline and
enjoy the ride.
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