The Biotech Buy

Human Genome Sciences (HSGI:Nasdaq - news - boards) is up $15 Friday and taking other top genomics companies like Millennium Pharmaceuticals (MLNM:Nasdaq - news - boards) with it because the Motley Fool "bought" the stock in its "Rule Breaker's" portfolio.

After 10 months of debating on their message boards, it was pretty clear the "buy" was coming, but it's still impressive what 2 million e-subscribers can do.

The last time David Gardner and the Fools did this was Dec. 14, when they put a buy on Celera Genomics (CRA:NYSE - news - boards). On a presplit basis, Celera went from $75 to $125 over the subsequent five trading days (the Rule Breaker's portfolio spreads its buy of a recommended stock over five days to try to blunt any market-moving impact). In the process, they launched the genomics mania that peaked in early March.

Biotech actually started moving up in late October last year, but the Celera recommendation kicked it into overdrive.(Many biotech hedge funds returned 40% in December alone.) Celera ultimately rose to $552 a share in late February on a presplit basis before cascading down in March along with everything else. (The kick by President Clinton and Tony Blair about the human genome didn't help, but that's another story.)

Now the question is, will the Fools provide enough lift to keep biotech up? A falling euro, high oil prices and Al Gore whaling on the big health care companies means nothing to biotech companies --- they aren't truly affected by it. (In a similar vein, Jay Silverman of Robbie Stephens started the biotech lift in September 1998, when he pointed out that biotech could care less about the Asian contagion.)

But perception is reality. Biotech has a tough time staying up when all of the Nasdaq is cratering around it. Right now, a lot of new funds have been started in biotech and every general fund that can own biotech now does so. Meanwhile, the number of lockups that will come off biotech IPOs and secondaries in the next two months will unleash more than $10 billion of stock on the market. Can biotech absorb that and still stay up, let alone continue to rise?

J.P. Morgan's big genomics conference is in San Francisco next week. Will it help the sector blast through what look like double-tops in the American Stock Exchange Biotechnology Index and the Nasdaq Biotech Index? (Ultimately, the answer is, "Of course." But I'm interested in today.)

Help us, GBS-Kenobi. You're our only hope.

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Lissa Morgenthaler runs the Monterey Murphy New World Biotechnology Fund, and has written on biotech for various publications, including Barron's and Michael Murphy's California Technology Stock Letter for more than 15 years. At time of publication, the New World Biotechnology Fund was long Celera Genomics, Human Genome Sciences and Millennium Pharmaceuticals, although holdings can change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Morgenthaler appreciates your feedback and invites you to send it to Lissa Morgenthaler .