On November 30, 2007, I presented my thesis on why I thought biotechnology was the next big bull market.
My thesis was simple: a month-and-a-half earlier, a woman named Kathleen Casey-Kirschling was the first baby boomer to file for Social Security benefits.
Little did anybody know this marked the day that the 21st Century’s biggest bull market began.
The numbers are staggering. . .
An average of 10,000 baby boomers is set to file for Social Security every single day for the next 20 years!
To call this a mega-trend would be an understatement.
And to call this one of the greatest moneymaking opportunities in history would also be an understatement.
That’s why I’m here today to tell you it’s high time to buy biotechnology.
If you haven’t noticed, biotech is the hottest sector in the market today. Hotter than oil. . . hotter than gold. . . and hotter than renewable energy.
This is a 6-month chart for the NYSE Arca Biotechnology Index:
Even with Obama pushing for health care reform, the bull market in biotech is running hard. Why?
Because regardless of healthcare reform, older Americans will need constant medical care. Somebody is going to pay for medical care, whether it’s the federal government vis-à-vis the taxpayer. . . the health insurance companies. . . or the customer.
And big pharmaceutical companies like Johnson & Johnson and Pfizer know this. . . and that’s why they are positioning themselves for the future.
As you read this, pharmaceutical companies — sitting on record cash reserves — are on a biotech buying binge:
- Medarex, a small biotechnology company that was trading for less than $4 a share last March, received a $16 tender offer from Bristol Meyers on July 28
- Johnson & Johnson bought out Cougar Biotechnology for just under $1 billion in May
- Celldex Therapeutics announced its plan to acquire CuraGen for $94.5 million
- Novartis and Pfizer also did some international shopping in India and Austria, respectively
- And in March of this year, Roche acquired biotech giant Genentech
With the biotech bull market in high gear, I’m going to tell you about three ways to play it. Similar to the Obama infrastructure plays, I will give you a speculative play, a mid-tier play, and a safe way to play biotech.
Government Proposes an Alzheimer’s Czar
This past July, a research report was released that said that Alzheimer’s cases are rising at an epidemic pace.
It’s easy to see why.
The senior citizen cohort is the fastest growing cohort in America today.
In fact, it’s the fastest growing segment of society in the western world.
In the United States, 350,000 new cases of Alzheimer’s are diagnosed each year. . . adding to the five million cases that already exist today.
Now here’s were it gets really bad: $100 billion is spent in America annually to cover Alzheimer’s treatment. . . and those costs are rising fast.
It’s gotten so bad that on July 29, Senators Mel Martinez and Evan Bayh proposed a bill that would create a national Alzheimer’s Office in the White House. . . with the creation of an "Alzheimer’s Czar."
The whole goal of this policy is to "accelerate the development of cutting edge medical treatments and drugs to fight Alzheimer’s. . . "
My favorite play in the Alzheimer’s space is also my most speculative play: Anavex Life Sciences (AVXL – OTCBB).
Anavex appears to be the one of the only — if not the only — company pursuing the most promising path to an Alzheimer’s cure. It is countering oxidative stress by targeting sigma receptors.
If you read my previous reports on Anavex, I explained that receptors are protein molecules that exist in or near the surface of cells. These molecules are vital in receiving cell expressions.
It’s been confirmed that sigma receptors play a role in a vast number of conditions and offer as many therapeutic opportunities. Some are involved in pain control, going back to sigma receptors’ roots. Others have oncological value treating cancers. Anavex has 30 solid candidates in varying states of development.
Anavex is a microcap stock with huge upside potential: either a pure play on Alzheimer’s or as a takeover candidate. It’s one of those plays that offers true 100-to-1 profit potential. I rate Anavex a strong buy at current levels.
All You Can Eat Biotech Buffet for $55
My mid-tier play on biotechnology is the S&P Biotech ETF (NYSE Arca: XBI; $55). This gives you broadbased exposure to the biotech sector. This ETF holds giants like Amgen and Genzyme to smaller biotechs like Regeneron.
This ETF has rallied in lock-step with the biotech sector, as you can see by its chart:
I personally own this ETF and will be adding to it on weakness. I consider XBI a good way to participate in the growth in biotech this century. . . and I recommend it at current levels.
If you’re looking for a safe play in biotechnology, look no further than Johnson & Johnson (NYSE – JNJ; $60).
JNJ does over $60 billion in annual revenue and has $13 billion sitting in the bank. . . and pays a dividend of roughly 2%.
Their broad product line is second to none. They sell everything from Aveeno. . . to liquid stitches. . . to the cancer drug Procrit.
And last month, JNJ paid $893.7 million for Cougar Biotechnology, a development stage company that is testing a potential treatment for prostate cancer.
JNJ trades at a market cap of about $160 billion, so it’s a big cap stock. But if you’re looking for steady gains without a lot of risk exposure, JNJ is the way to go.