This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
$1 buys you full access to ALL of TheStreet's Subscription Services! Learn More

Chart Explains The Biotech Bull Market

Stocks in this article: CELGBIIBGILDAMGN

BOSTON ( TheStreet) -- The current biotech bull market is summed up nicely in the chart above, created by ISI Group analyst Mark Schoenebaum.

Take a look at the blue line. That's the Nasdaq Biotechnology Index (NBI), a market cap-weighted index containing 120 biotech and drug stocks. The NBI is now trading at an all-time high, blowing past the previous all-time high of 1,596 set in March 2000.

Why is this new high for the NBI so significant? Look at the blue line on the chart again. The years 1999 and 2000 encompassed the go-go years of the genomics bubble when investors went bonkers for biotech and drug stocks. (Human Genome Sciences, a "genomics" drug company at that time, traded over $100 per share.) The genomics bubble burst in 2000 and the subsequent crash hit biotech stocks hard and lasted several years.

With the NBI making new all-time highs seemingly every day, should investors worry that we're deep into another biotech stock bubble today? Schoenebaum argues no (at least not yet) because from a valuation perspective, biotech stocks are on a much stronger financial footing today than they were in 2000.

Take a look at the red line on the chart, which represents the median price-to-earnings multiple for the same time period. In 2000, as biotech stock prices were peaking, so were P/E values. Today, biotech stock prices are stronger than ever -- Celgene (CELG), Gilead Sciences (GILD), Biogen Idec (BIIB) and Amgen (AMGN) are all trading at all-time highs. The P/E multiple for the biotech sector is way below its historic high, however, and the aforementioned big-cap stocks could triple even quadruple earnings over the next several years.

This is the chart that generalist investors love because it tells them that biotech and drug stocks are still cheap, Schoenebaum says. So, while investors who specialize in healthcare, particularly long-short hedge funds, worry about stock prices getting overheated and watch their screens anxiously for signs of a correction, interest in buying healthcare stocks from generalist investors has never been higher, he says.

And that's why the NBI is trading at an all-time high.

How long will this biotech bull market last? If you have thoughts, leave them below.

-- Reported by Adam Feuerstein in Boston.

Adam Feuerstein writes regularly for TheStreet. In keeping with company editorial policy, he doesn't own or short individual stocks, although he owns stock in TheStreet. He also doesn't invest in hedge funds or other private investment partnerships. Feuerstein appreciates your feedback; click here to send him an email.

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

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.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

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.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,828.43 +109.43 0.62%
S&P 500 2,065.85 +13.10 0.64%
NASDAQ 4,724.5260 +22.6590 0.48%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs