Swing Into Biotech With Eight Picks

This column was originally published on RealMoney on Sept. 20 at 12:00 p.m. EDT. It's being republished as a bonus for TheStreet.com readers.

Biotech stocks are on the move. It's a good time for traders and investors to get ready for action.

I examined the sector Monday, noting bullish developments in the Biotech HOLDRs Trust(BBH) and highest-capitalized group issues.

I've put together a sizable watch list of mid-cap biotechs that could be top performers in the weeks ahead.

Many of these stocks aren't trading at perfect buy prices this week, so sit on your hands and wait for third-quarter window-dressing to bring institutional buyers off the sidelines.

Protein Design Labs(PDLI) has doubled in price since my last look at the stock in April. This strong rally still shows considerable upside. Price is now working its way through a test of the 2004 high and may bottom out near current levels. Watch for last week's lows to hold and set up a rally that takes the stock to yearly highs.

Abgenix(ABGX) has underperformed the sector for several years, but just broke above a yearlong basing pattern at $10.50. It's risen steadily for the last five months and now could jump quickly into the mid-teens. The 2004 high at $19.50 marks strong resistance, so I'd use any rally into that price level to take profits.

ViroPharma(VPHM) is a great play for daytraders, swing traders and investors. The stock has rocketed from $1.67 to $18 in the last three months, but price action still shows a highly bullish pattern. It gapped into a test of the yearly highs following an upgrade last week, and it may not stop until it hits considerable resistance at its 2001 high near $41.

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Protein Design Labs

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Abgenix

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ViroPharma

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Cubist Pharmaceuticals

Cubist Pharmaceuticals(CBST) just hit a four-year high in a grinding rally that shows no signs of letting up. But traders need to be careful, because the stock is moving higher in a volatile channel; that could trigger stop-losses below common support levels. The current uptick should continue until the stock nears strong resistance in the mid-$20s.

Vertex Pharmaceuticals

Vertex Pharmaceuticals(VRTX) just rallied above two-year resistance at $18.75. This breakout should set up a rally that takes price into the low $20s in the weeks ahead. Progress should slow at that time, while the stock absorbs a series of old highs between $23 and $32. But the long-term outlook remains positive for this strong biotech performer.

Meridian Bioscience

Meridian Bioscience(VIVO) trades at an all-time high in a powerful rally that began four years ago. It split 3-for-2 on Sept. 6, improving liquidity and letting more shareholders come on board. The stock dropped down to test split-day levels last week and had a strong bounce. Look for it to test the September high in the next week or two.

Biomarin Pharmaceuticals

Biomarin Pharmaceuticals(BMRN) is a tougher call than other biotechs featured here. It tested its 2004 high at $8.80 last week and then sold off on greater-than-average volume. This predicts it will see lower prices before it takes another run at the highs. The best plan is to wait for fresh buyers to step in and solidify a base for a rally back to resistance.

Neurocrine Biosciences

Neurocrine Biosciences(NBIX) is building a base, with resistance at $53. The stock now sits a few points below that level and should approach it soon. That test will complete an inverse head-and-shoulders pattern that sets the stage for a major breakout. This stock can be a fast mover, so a rally above resistance could carry through $60 in a hurry.

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