November 8, 2007

What to make of this mess?

Wall Street has been a mess lately. Credit woes continue; Bernanke talks of a slowing economy; the Dollar is at record lows; and oil is nearing $100. So where can we make money in this market? I'm sure the nature of my site has already given away the answer. Yep, I think we can make money in biotech. I think this market sets up good for the biotech sector because of the slowing economy, the weak dollar, and potential for growth.

It's pretty common to Wall Street that investors become defensive when a slowing economy presents itself. That tends to mean investors flock to gold, consumer staples, supermarket, and medicine stocks. Biotech certainly fits the bill because people in need of medicine are probably going to pay for it despite a slow economy.

Secondly, the weak dollar has been great for biotech and obviously is going to continue to be. Biotech companies derive a good portion of their sales overseas, and the weak dollar inflates those sales numbers.

Lastly, biotech is a growth sector by nature. In my opinion, this is the time to be seeking growth stocks. Despite a weakening economy, there are still companies that are growing at brisk paces. Growth means stock prices are likely to go up. Macroeconomic forces can only hold back stock prices so much if a company is growing at 20%+ per year, like a lot of biotechs do.

In this current market situation, I'm looking for biotech companies that get at least 30% of their revenues from markets other than the United States and are expected to grow sales and earnings greater than 20% next year. When screening for these criterion, I found 19 stocks that I'm going to do some further research on. There are some opportunities out there in the biotech sector and I'll discuss my findings from this stock screen soon, which will hopefully help us find some money-makers.



It takes twice as long to fix a mess as it does to create one.