Get Your Off-Price Drugs

This column was originally published on RealMoney on May 23 at 7:15 a.m. EDT. It's being republished as a bonus for TheStreet.com readers.

The biotech sector has sagged to 14.9% undervalued, and it looks as if there are bargains to be had.

On March 31, I suggested that investors reduce holdings in the brand names with a market capitalization above $10 billion.

In the wake of their subsequent decline, they are testing value levels; investors who reduced holdings as I suggested should consider adding to positions.

A reminder: My evaluations are based on publicly available financial data and weekly and daily chart patterns -- I do not keep track of drug pipelines, FDA milestones or industry conferences.

I assume that investors know more about these factors than I do.

My guidelines should be used by those who know the details on the products and prospects to adjust their positions.

My benchmarks for biotech, iShares Nasdaq Biotechnology Index Fund (IBB Quote) and the Amex Biotechnology Index (BTK Quote), are down 12.5% and 11.3%, respectively, since March 31.

However, both appear poised to hold their October lows. With a potential tradeable bottom near, it's time to reset the profiles for the biggest biotech companies.

With shares of Amgen (AMGN Quote) still close to my semiannual pivot of $66.86, investors should pick up shares for a rebound to my monthly risky level of $72.19, where investors should reduce holdings.

If it falls through $66.86, wait to buy until it finds support at its 200-day simple moving average of $62.36, which is the next level at which to add to positions.

Biotech Stocks
	May 19 Price	Rating	(-UV) / OV%	Fair Value	MOM	5-Week MMA	Value Levels	Pivots	Risky Levels
Amgen (AMGN)	$67.69	Buy	-4.90%	$71.19	OS	$69.26	57.63 S	66.86 S/67.90 Q	72.19 M
Biogen Idec (BIIB)	$45.69	Buy	-7.60%	$49.42	F	$45.83	none		48.33 M
Genentech (DNA)	$80.03	Hold	-22.70%	$103.54	RM	$81.06	67.27 S/66.48 A	82.23 S	84.48 A
Genzyme (GENZ)	$58.37	Hold	-18.00%	$71.21	OS	$61.59	39.47 S		69.27 A/72.19 A
Gilead Sciences (GILD)	$54.94	Hold	3.20%	$53.21	DM	$58.29	45.21 A	52.01 S/54.62 Q	59.94 M
Key: MOM, momentum; OB, overbought; DM, declining momentum; RM, rising momentum; OS, oversold; M, monthly; Q, quarterly; S, semiannual; A, annual. A value level is a price at which my models project that buyers will emerge; a risky level is a price at which investors are likely to reduce holdings, according to my models. A pivot is a value or risky level that has been breached in its particular time horizon; the stock will likely trade around this pivot. Source: Global Market Consultants

Add to positions in Biogen Idec (BIIB Quote) on weakness to the 200-week MMA, $44.62, or a weekly close above the five-week modified moving average, $45.83. Investors should reduce holdings if it rises to my monthly risky level of $48.33.

The fair value of Genentech (DNA Quote) is up to $103.54 from $97.18 on March 30, which justifies adding to this position now. Investors should consider reducing this holding at my annual risky level of $84.48.