NEW YORK ( TheStreet) -- Friday on CNBC's "Fast Money Halftime Report", the gang had a discussion about whether biotechnology is now in a bubble because of how well it is done this year. The iShares Nasdaq Biotechnology (IBB) ETF is up 49% this year compared to a 23% gain for the SPDR S&P 500 (SPY).
"Fast Money" Contributor Stephen Weiss noted that the biotech industry in not in bubble territory noting the Amgen (AMGN) is trading at 15 times next year's earnings and that Gilead (GILD) is only trading at 10 times 2015 earnings estimates. He also cited the Affordable Care Act as a catalyst for earnings growth. Pete Najarian echoed Weiss' sentiment.
Simon Baker made a thin argument talking about the speculation built into current prices, essentially saying biotechs will fall more than the rest of the market when the market eventually corrects. Weiss and Najarian refuted him by sticking to the valuation argument these are not Netflix (NFLX) was blurted out in the middle of the exchange.
The conversation missed the most important point which is that bubbles are not about valuation or simply a stock or industry group being up a lot. Bubbles are about investor psychology and have widespread consequences after they pop.In early 2008, I was on CNBC for a segment about whether solar stocks were in a bubble. I was invited on thanks to a negative article on the group I wrote for TheStreet.com. Solar stocks had been white hot at the time. When asked if solar stocks were a bubble, my reply was no they are a mania. The entire market cap of the industry was about $100 billion and I noted that if they all went down a lot in price there would be no impact on society. During the Internet bubble there were dozens of individual companies with little to no revenue or earnings that had market caps greater $100 billion or put another way, many individual companies were larger than the size of the entire solar industry at its peak. In thinking about the tech wreck and the housing bubble, both had far reaching consequences; the Internet industry grew to have a combined market cap in the trillions of dollars and home values affect 2/3 of the U.S. population.
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass Plus 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV