Feuerstein's Biotech-Stock Mailbag

Mailbag reader Rollie sent me this after reading the Feb. 23 edition:

"Thanks for the column, as you were in rare form. I laughed my [butt] off. I appreciate all your good work and you have kept me out of some real disasters. You play great defense, but I have a hard time trying to figure if you have several must-own names.

"I'm writing this on Thursday. The markets are having another awful day. What's new, right? My ticker screen, populated with dozens of biotech stocks, is red, red, red. The broader biotech sector indices are all in freefall, either trading near their one-year lows or heading in that direction."

So, Rollie, ask me again what I like?

These days it's easier to tell you what I don't like, because it's just about everything. Small-cap, development-stage biotech seems un-ownable (is that a word?) right now. The observations I made last month about the apathy (or is it fear?) that institutional investors seem to have toward most of the biotech sector is still very much in play.

It doesn't feel like it's getting better any time soon, either -- certainly not based on the conversations with professional biotech investors who are cursing every long in their portfolio and wishing they were more short.

Biotech Stock Research's David Miller, in his most recent newsletter, makes a very astute observation: Funds of funds -- the large investment vehicles that invest in hedge funds -- have been forced to reclassify a lot of their formerly low-risk credit debt as high risk. Since most of this new high-risk debt is now illiquid and can't be sold, the funds have been forced to dump their more liquid high-risk investments in order to keep their overall risk ratios in balance.

And yes, you guessed it, that means they're selling biotech, explains Miller.

This, at least in part, explains why your favorite biotech stock seems to dip lower on a daily basis.

Rollie, it also helps explain to you why my list of must-own biotech stocks is rather small these days. I'm not telling anyone they have to own biotech stocks. I'm certainly not one of these commentators who will tell you to own biotech stocks because of all the good works they're doing for mankind or because the science and technology is so cutting edge.

That's just a recipe for losing money.

Right now, big-cap biotech looks to me to be the only safe biotech haven in the current market. I'm talking about stocks like Genentech(DNA Quote), Celgene(CELG Quote) and Gilead Sciences(GILD Quote). (All three are up for the year, by the way, as is Biogen Idec(BIIB Quote). Genzyme is down slightly and Amgen(AMGN Quote) is flat.)

Product-driven, mid-cap biotech stocks, especially those near or at profitability, aren't bad either (BioMarin(BMRN Quote) is a good example.) But tread lightly because these stocks have also come under increased selling pressure recently.

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There's a lot of frustration out there. Ted B. sent me an email with a subject line that I can only describe here as an anthropomorphic manifestation of the male sex organ:

"Thanks a lot [BLEEP] for your Cell Genesys(CELG Quote) feedback," wrote Ted.

You're welcome, Ted. Although I wish I had the power and influence that you think I have over Cell Genesys, in reality there are much larger and more powerful forces at work here. It's best to understand that if you're going to put your investing dollars into high-risk biotech stocks.

Absent that, I guess it's just easier to blame the messenger.