Caution- Risk Remains High But Opportunities Lie Ahead

Obviously all of these stocks were up huge YTD until early August when the correction began then they were hit harder on the second downturn on September 21 with the Hillary tweet on drug pricing hitting biotech bear market technical levels. There is still likely to be headline risk on drug pricing so stay cautious until Third Quarter earnings come out.

Rayno Top Winners YTD

Fibrocell Science (FCSC) up 69%

Clovis Oncology (CLVS) up 61.6%

Regeneron (REGN) up 28.4%

Seattle Genetics (SGEN) up 21.3%

Gilead Sciences (GILD) up 5.6%

Rayno Top Losers YTD

Biogen Idec (BIIB) down 21.5%….down again today in pre-market

Abbvie (ABBV) down 14.6%

Alexion(ALXN) down 13.6%

GlycoMimetics (GLYC) down 4.6%

Vertex (VRTX) down 4.3%

Two stocks to watch when earnings hit are Biogen BIIB) and Gilead Sciences (GILD) both huge winners over five years but technically weak lately. Both should be watched for margins and pricing:

BIIB trades at P/S of 6,  Forward PE of 14.87, PEG 1.14, P/FCF 19.27.

GILD trades at P/S of 5,  Forward PE of 8.64, PEG 0.62, P/FCF 8.49.

Celgene (CELG) a highly touted stock on CNBC and with several analysts is still up 5% YTD and is recovering nicely to the $117 level from lows of the year near $105. P/S for 2015 are 11 but revenue estimates are $11.29B for 2016.

Biotech stocks are “bobbing” just above the early October bottom with a  bit of buying support but still 13% off mid-September highs. Sentiment remains negative because of long term pricing concerns. As we have said before there is still a good chance of  a fourth quarter rally assuming the  NASDAQ can hold up.

Over the past week there has been a rotation out of the healthcare and life science sector into cyclical stocks like energy and industrials. As earnings roll-out look for growth in telecom, consumer discretionary and financials compared to healthcare (XLV). The XLV has rallied but is flat YTD tracking the large cap weighted IBB. Despite the choppy action there are good trades in small and mid-caps every day so look for the XBI to get some momentum.