Momentum trading can burst upon the scene like a tornado and turn everything upside down. Stock price and valuations are blown about in the wind, usually reaching highs longtime investors only dreamed they'd see on the other side of the rainbow.
In the suddenly story-book life of biotech stock
Protein Design Labs
, the company is still waltzing with the prince, the clock is frozen at 11:59 and there's not a pumpkin in sight.
PDL has risen an ear-popping 300% in the past month. Granted, the company leapfrogged more than 50% -- to the 200 range from around 135 -- on Feb. 16; but in the two weeks prior, the stock saw several daily moves of between 5% and 10%, mostly without any corresponding news about the company.
The stock could be a poster child for momentum traders, as investors who have driven a stock up 10% one day feel confident that it's going to spike upwards another 10% the next. According to several fund managers, analysts and stock traders, these climbing stocks have at least a few common elements to make the rocket ride complete, including a good story, a strong sector and support from within.
Bill Tanner, an
analyst who reiterated his buy rating on PDL last week, says when such investor activity begins, Wall Street may be wise just to get out of the way. "In cases like these, the market tells us what the stocks are worth. We don't try to," he says, adding, however, that he is aware such run-ups can turn around just as quickly. SG Cowen has done investment banking work for PDL, including as recently as last month.
During February, four different analysts reiterated or started bullish calls on PDL. And because good news begets good news, the upswing started in earnest. As the stock grew, so did the chatter surrounding it on several bulletin boards. A message poster called "DavidG" wrote on
a prophetic note as the stock was tickling the 200 range. "The story is just beginning guys. You have to buy before others see it, we are at the beginning, enjoy it." The stock is up 55% since then.
From that one-day leap in mid-February, PDL has continued upward, hitting new highs almost every trading session, including the last high-water mark on Monday of 329 7/8, breaking a record set, well, on Friday. The stock closed Monday at 310 3/4, up 29 3/8. There was no news on the company. Another day, another 10% gain.
For these run-ups to happen in the first place, the company has to be fundamentally sound, or it's just a game of hot potato with the last stockholder looking on as the shares plunge, several sources say. Just the appearance of possible big-ticket potential will do.
In PDL's case, the Fremont, Calif.-based company has eight proprietary products in clinical development, including one, Zenapax, that is already on the market. Zenapax is a specially developed antibody that helps in organ transplants.
"I don't think this run-up is because investors have singled out one product of ours," says Dr. Bob Kirkman, PDL's vice president of investor relations and business development. In fact, Kirkman says, it may be PDL's eight different offerings that strengthen its story. "There are so many biotech companies out there that have just a single product, and we're not a one-product company."
Kirkman wouldn't comment in detail on PDL's stock price, other than to say its sector -- antibody development and research -- is of particular public interest right now.
And that's another big factor in sustaining a run-up. The company has to be at least related to a particular theme that is creating a buzz among similar stocks. Again, in PDL's case, human antibody research became a hot topic. The stocks that were seen at the forefront of that research -- such as
-- saw their stocks' prices rise like popcorn. Indeed, the stock charts of all three companies are nearly identical.
"The antibodies story has captured the imagination of everybody, and PDL's price reflects the unexpected interest," says Jeremy Curnock Cook, a portfolio manager for
Rothschild Asset Management
in London. His fund has a long position in Medarex.
Finally, another factor to sustain a streak is an occasional stoking of the fires by the company in terms of a positive news announcement, like a stock split (which PDL has not done in February). That shows investors, especially short-term traders who may be darting in and out of the stock, that company management is being proactive about its stock price. In fact, it was a press release announcing the status of several antibodies in development on Feb. 1 that started the stock skyward. PDL also took advantage of the price to sell a convertible offering, raising cash the company can use later.
Of course, some investors are simply too nervous about these high-flying plays to move on them. "It's working now so everyone thinks they're a genius," says one hedge fund manager who requested anonymity. His fund stays away from such activity. "It's a mania and it'll go on until people get really hurt."
As of Monday, though, PDL shareholders were feeling anything but pain.