The Daily Interview: The Outlook for Biotech Stocks
Biotech investors: Fasten your seatbelts, severe turbulence ahead.
Monday's almost 8% drop in the biotech sector suggests that investors don't have the stomach anymore for high-risk investments, says Stefan Loren, managing director and biotech analyst at Legg Mason Wood Walker. While Loren still believes a sector recovery is inevitable, many of the old rules just don't apply anymore.
We talked to Loren about his reaction to Monday's trading and his thoughts on what biotech investors can expect in the next few days and weeks.
TSC: What's your gut reaction to Monday's biotech sector selloff?Loren: There is a flight to liquidity and safety. The market is telling us that there is going to be a nasty downturn and that risk tolerance has gone way down, so that high-beta stocks in biotech land have really gotten hurt. But at the same time, drug stocks were flat or slightly up for the day [on Monday] because drugs are much more resilient. The money is going someplace, and the question is where are health care funds putting it? Right now, they're putting their money into pharmaceuticals. TSC: The fall is supposed to be the time of the year when biotech really shines and big gains are made. Should we forget about that happening now? Loren: After the summer malaise, we were hoping to see a little rebound in September, given all the meetings going on. This really takes a lot of wind out of the sails. There is no question that it's going to be a hard market. As much as I'd like, or hope for, a roaring recovery very quickly, it's not realistic. TSC: So we should expect more selling this week? Loren: We still don't know. From our contacts in Europe, they were telling us that they were going to wait and see. What happens if they decide that they're a little uncomfortable with our market and start pulling out of the biotech area? Well, given the liquidity, that's a bad event. Most Europeans have not acted yet, and that's a big question mark.
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 + 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