This Day On The Street
Continue to site right-arrow
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
Cramer's Action Alerts PLUS - See his portfolio and get alerts BEFORE every trade. Learn more NOW!

Chart Explains The Biotech Bull Market

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 - Get Report), Gilead Sciences (GILD - Get Report), Biogen Idec (BIIB - Get Report) and Amgen (AMGN - Get Report) 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.

Check Out Our Best Services for Investors

Action Alerts PLUS

Portfolio Manager Jim Cramer and Director of Research Jack Mohr reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

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
Stocks Under $10

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

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
14-Days Free
Try it NOW
Only $9.95
Try it NOW
14-Days Free
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

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
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
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!
AMGN $155.89 -2.50%
BIIB $412.63 -2.30%
CELG $113.70 -1.40%
GILD $96.58 -1.60%
AAPL $123.89 -0.43%


DOW 17,679.06 -97.06 -0.55%
S&P 500 2,056.51 -11.38 -0.55%
NASDAQ 4,860.0450 -40.84 -0.83%

Partners Compare Online Brokers

Free Reports

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