Now, here's my seven-stock, two-part biotech portfolio for the seasonal rallies.

Group 1: Three Profitable Big-Cap Biotech Leaders

Amgen ( AMGN) is down from its early February 2004 peak near $66, but the stock has been rebounding lately. On the basis of the strength of Amgen's product lineup, I predict compounded annual earnings growth of about 20% through 2005. Using that forecast as well as projected earnings per share of $2.85, Amgen is currently selling for a price-to-earnings/growth rate (PEG) ratio of roughly 1 -- historically cheap for Amgen or any stock with this kind of potential growth. The stock is as cheap as it is for a couple of reasons: Investors fear growth could be trimmed by reduced reimbursement benefits, and while Amgen's pipeline of new drugs looks strong in the short and long term, the middle term is worrisome.

Chiron ( CHIR) is currently trading at just 21 times projected 2005 earnings, but valuation is not the likely catalyst for this stock. Instead, look to the upcoming fall and winter flu season to put a spotlight on this leader in the flu vaccine segment.

Genentech ( DNA) wants to be the world leader in cancer drugs. The company's stock dropped from a peak above $60 in April to $45 at the end of July. In August the stock reversed course, and it appears to be building a base for the rest of the year. Tarceva, a promising lung-cancer drug from Genentech and its partner OSI Pharmaceuticals ( OSIP), is likely to receive FDA approval in late 2004 or early 2005.

Group 2: Four Unprofitable Companies With Potentially Huge Pipelines

Cell Genesys ( CEGE) has a pipeline full of gene-therapy drug candidates for Alzheimer's, Parkinson's and Lou Gehrig's diseases, but the nearer-term payoff comes from the company's GVAX line of cancer drug candidates. I look for the first drug, for prostate cancer, to hit the market in 2008, with drugs for lung and pancreatic cancer to follow by 2011.

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