Biotechs Get Blitzed

Biotech Blowup

The boom that had been biotech stocks got lowered today when Merrill Lynch cut its near-term ratings on Amgen (AMGN), Genzyme (GENZ), Idec Pharmaceuticals (IDPH) and Medimmune (MEDI).

Only Amgen sidestepped the sideswipe, rising 0.7% to 81 7/16 after trading as low as 78 3/8. Shares of the others fell between 2.6% and 4.6%, while the broader market rallied.

"I hate agreeing with the sell side but every now and then they get it right," said Evan Sturza of Sturza's Medical Research. "It was a well-timed, appropriate call. There are stocks that are crazy, wild Internet-like momentum stocks. [They're] off the charts, trading at valuation levels that defy logic. These are good companies but at some point you have to say they're overdone."

After operating solely as a researcher for many years, Sturza recently opened a hedge fund with a focus on the same industry, Ursus Capital.

Sturza acknowledged the nascent hedge fund is short two of the names Merrill downgraded today. However, he declined to specify, fearing a backlash that could hinder the research efforts of the firm bearing his name. This raises the question of whether there's an inherent conflict when anyone attempts to straddle the line between the buy and sell sides. Sturza did not respond to an email seeking comment and could not be reached by phone late tonight.

During our earlier conversation, Sturza noted -- with a chuckle -- that IDEC shares had a "nice little freefall on no news" late yesterday as the broader market was rallying. "Today, you see Merrill cut the stocks." He seemed to chalk the activity up to business as usual on Wall Street.

Heading into the final 90 minutes of trading yesterday, IDEC was at 138 after trading as high as 141 1/4 earlier, according to the very handy charting tools at barchart.com. By 3:35 p.m. EDT the stock traded as low as 135 5/8, but spiked to as high as 137 1/4 by 3:45 p.m. In the final 15 minutes of the session, the stock traded as low as 135 1/4 before closing at 135 9/16.

Making it juicier still, Merrill Lynch Pierce Fenner & Smith was the top market maker for Idec through July, according to the Nasdaq Stock Market, accounting for 20% of the volume year-to-date.

However, "we have no knowledge of anyone not living up to obligations and internal procedures," a Merrill spokeswoman said, noting the stock closed above its session low of 134 3/8.

Long Live the Mania

There's a new sheriff in the daytrader's momentum-crazed stock town: Pokemon.

Toy stocks associated with the craze (ask your kids), had some cartoonesque gains today on huge volume. Grand Toys International (GRIN) leapt 52% on 19.8 million shares vs. a 1.6 million-share float. Toymax International (TMAX) rose 32.5% on 6.4 million shares vs. its outstanding float of 10.6 million. 4Kids Entertainment (KIDE) fell 0.8% to 65 today, but had risen from 19 3/8 on July 6 to 65 1/4 through yesterday, leaving investors scrambling to find the next Pokemon mover.

"Daytraders have found something with small floats that are not on anybody's margin lists and they're plowing into them," said one Wall Street strategist. Momentum may take them higher, but any time the public pours into stocks like these they become "the greatest shorts ever," the source said.

Charles Payne, president and chief analyst at Wall Street Strategies, agreed.

"I guarantee you a year from today, Grand Toys will be down 75% from where it closes today," Payne said. "No matter how hot this Pokemon thing gets, it's a fad. It's a temporary hysteria. The first time you see an insider file a huge block to sell," that's the time to short the stock.

Payne compared the Pokemon powerhouses to Acclaim Entertainment (AKLM) which has stumbled steadily since closing at a 52-week high of 12 3/4 on Jan. 11. Today, the developer of interactive game technology closed down 0.8% to 7 5/8.

That's a 40% decline from the high for those scoring at home. Or not scoring, as the case may be.

Report Card

Here is the final installment of our three-day look at how picks in this column have fared. We'll revisit this concept on a semi-regular basis.

Date	Source	Recommendation	% Up or Down*
Aug. 6	Rick Ziesing, founder of Bonanza Capital Management	SHORT: Chase (CMB), Merrill Lynch (MER) Bank of America (BAC), Ford (F) General Motors (GM). Level 3 Communications (LVLT), Qwest Communications (QWST), Williams Companies (WMB), and Montana Power (MTP)	CMB: +12.9 MER: +22.9 BAC: +10 F: +8 GM: +9.3 LVLT: +21.3 QWST: +7.6 WMB: +10 MTP: -14.4
Aug. 9	Roxane Googin, editor of High Tech Observer	BUY: Compaq (CPQ), Advanced Radio Telecom (ARTT). AVOID: Intel (INTC)	CPQ: +6.3 ARTT: +9.1 INTC: +13.9
Aug. 10	Charles Payne, president and chief analyst at Wall Street Strategies	"Look for Rebounds" in Go2Net (GNET), DoubleClick (DCLK), RealNetworks (RNWK),Best Buy (BBY) and Circuit City Stores (CC). "Aggressive accounts," BUY: Stamps.com (STMP)	GNET: +11.8 DCLK: +24.2 RNWK: +20.3 BBY: +21.4 CC: +18.4 STMP: +29.8
Aug. 11	Dwight Anderson, partner at Tudor Investments	BUY: AK Steel (AKS)	AKS: -5.9
Aug. 17	Jim Cramer, Cramer Berkowitz	Intel (INTC) "has the momentum."	INTC: +5.9
*Through today's close. Source: ILX.

As for followups, Payne said "I still love 'em all, especially on any kind of dip."

Rick Ziesing of Bonanza Capital Management, meanwhile, said he is now fully invested and has covered all those shorts, including Montana Power (MTP) today "for a nice gain."

"I screwed up badly on the [Level 3 (LVLT)] short and did not cover when my work said I should have," the fund manager confessed via email. "Discipline, son, discipline."

"My performance was less that I would have liked but, hey, if [the market] had melted down, these would have offered some protection of capital, our first concern" Ziesing added in a subsequent fax. (Technology is amazing, huh?)

Still, he noted the fund is up 19.5% net year-to-date.

And Finally

Sincere apologies to anyone offended by my crack about Barney Frank and Alan Greenspan earlier this week. I meant no harm. I meant no disrespect. I did not mean to imply anything untoward. I was referring to Frank's lambasting of Greenspan during the Fed chief's appearances on Capitol Hill.

Sometimes the intent of a joke gets lost in the translation -- or maybe just wasn't very funny in the first place. But I hope we can all move on from this and -- of course -- all get along.

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