The Time Is Right for These Seven Biotechs

On Aug. 9, the Amex Biotechnology Index (BTK) hit what is likely to be a bottom for the season at 448. If this year is like most years past, investors can expect the sector to rally through September, pause, then rally again from December through February.

Obviously, the rally isn't guaranteed. One need look no further back than 2001 for an exception to the rule. That year, the sector delivered its customary August rally but petered out prematurely on Aug. 27, beginning a decline that lasted until Sept. 24.

But in most years, biotechs decline in the spring as investors anticipate a summer hiatus in the conferences where new clinical results are announced. They rally in the fall as the conference schedule and the volume of news increases. Investing in biotechs now fulfills one of my basic investing tenets: Buy when the playing field is biased in my favor, and avoid it when it isn't.

Three Reasons Now Is the Time

I haven't owned a biotech stock in Jubak's Picks since I sold Icos (ICOS Quote) on June 10, 2003, and I haven't updated my biotechnology portfolio since 2002. But I think right now is a good time to both buy a biotech (I'll be adding one to Jubak's Picks with this column) and to put together a new version of that biotechnology watch list.

Why? First, seasonality. We're entering the strongest period of the year for biotech stocks. Says who? Yale Hirsch and Jeffrey Hirsch reach that conclusion in their book The Stock Trader's Almanac, as does RealMoney contributor Jon Markman in his book Online Investing.

Second, the sector pulled back from an April 26, 2004, high of 566 on the Amex Biotechnology Index to a low of 448 on Aug. 9 and has since moved up enough to give me confidence that this year has a strong chance of following the seasonal pattern.