American Stock Exchange Biotechnology Index
fell 6.6% as investors continue to flee the sector like toddlers at a Boogie Man convention.
Today's impetus to sell came from
analyst Rachel Leheny. She told investors to stay out of large-cap biotech stocks and downgraded
to buy from strong buy.
Her line of reasoning -- there's just no reason to pay that much for growth. Leheny said the industry's price-to-earnings ratio relative to growth, or PEG, was 2.4. The PEG is essentially a measure of how much investors think the industry will grow, and biotech's current levels are just a little too optimistic for Leheny.
"We see a 20% to 30% correction for profitable biotechnology companies as the downside and believe that a long-term PEG of 2.0 is probably a reasonable six- to nine-month 'landing' value," she wrote. "Based on this view, we do not believe it is prudent to keep strong buy ratings on any of the core large-cap profitable biotech names."
That is not good news. Leheny told investors that large-cap biotech stocks are overvalued at current levels, and she expects they will likely fall 20% to 30% in the next six months. "Given the current climate, we may see a significant decline in biotechnology stock prices if we are indeed entering a bear market," she wrote.
Look out below.
Companies that make tires were among the biggest market gainers today, a pretty good indication that Wall Street was awash in losses again. Yep, the
Dow Jones U.S. Tire Index
gained 1.8%, outpacing nearly everything else on the stock market.
Cooper Tire & Rubber
gained 7%, a much-needed bounce. Since March 13, Cooper has lost 20%, coughing up many of the gains seen at the beginning of 2001. The company's stock gained earlier this year after Cooper announced a reorganization plan. Then a warning and full-blown restructuring plan, complete with downsizing, took a chunk out of the company's stock price in February.