Where do we go from here?
Though it's tempting to hold an envelope to my forehead and make a guess on the general direction of biotech stocks, I will refrain from impersonating Johnny Carson's Great Karnak.
Making a prediction on what will happen with biotech stocks in the coming months would be a futile endeavor. I have no ability to predict what will happen in the short run with the sector, and I doubt anyone else can do it either. While many of these stocks have fallen hard, the situation could get much, much worse. Many biotech investors can recall the dark days of 2002, and this year hasn't been nearly that bad. Alternatively, the sector could improve. We can speculate which way the market will go, but there's no way to know for sure.
In general, I don't like to make investment decisions based solely on the overall sector valuation, though it is something that I do keep an eye on. I think that the best approach is to look for undervalued companies in all market environments. What I want to do is find quality drug programs that are not yet priced into the stock. Of course, it will be much easier to find good buys at fire sale prices when the sector is depressed than when it is flying high. It is during the downturns that the knowledgeable and rational biotech investors make their money. This is when we can buy shares on the cheap in good companies that no one likes at the time.
The wild ups and downs are just something that biotech investors have to deal with. If you own a good company and paid a good price for the stock, then I'd suggest not watching it every day. Assuming the reason for owning the stock is still sound, sit tight with it, and wait for the story to play out.
Source: The Montley Fool, http://www.fool.com/news/commentary/2004/commentary04081703.htm;
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