Despite President Trump circling around semi-regularly to bash the pharmaceutical industry and drug prices, biotech stocks seem to be doing pretty well. The Nasdaq Biotechnology ETF, called the IBB, is up about 17 percent so far this year.
CNBC’s Jim Cramer invited in technician Bob Lang, the founder of ExplosiveOptions.net and part of TheStreet.com’s Trifecta Stocks newsletter team to discuss three biotech stocks.
Gilead Sciences. As most followers of Gilead know, the company’s stock has been down for a while, a victim of its own success. Essentially, the company’s drugs for hepatitis C (HCV) are so good at curing the disease that they’re selling fewer of them as the patient pool gets smaller. Lang noted that Gilead has been doing better recently, especially after its $11.9 billion acquisition of Kite Therapeutics.
Lang focuses on technical indicators, so he notes that Gilead stock broke through its 50- and 200-day moving averages “as well as its former ceiling of resistance, and key momentum indicators like the Relative Strength Index have surged into positive territory.” Also, its moving average convergence-divergence indicator, which helps to predict a stock’s trajectory, “made a very bullish crossover,” which suggests a rally is imminent.
Cramer said, “The stock is overbought right here and the next ceiling comes in at around $82, up $5 bucks from these levels, but given everything else he sees in the chart, Lang believes Gilead can keep climbing. In fact, it’s his favorite name in the group and he wouldn’t be surprised if it starts challenging its old highs of around $110 by the end of the year.”
Celgene Corporation. Celgene has been having a tough year overall, and some of it is self-inflicted. In late 2017, it dropped a late-stage Crohn’s disease drug and two clinical trials associated with it. Much more troublesome in many ways, was when the U.S. Food and Drug Administration (FDA) issued a Refusal to File letter regarding its New Drug Application (NDA) for its multiple sclerosis drug ozanimod. For a company of Celgene’s size and experience, that was unexpected.
Celgene simultaneously took responsibility for the screw-up while pointing the finger at its California subsidiary, Receptos, saying that executives should have done a better job of integrating its operations after it bought it in 2015 for $7.2 billion.
Lang looked at the company’s Chaikin Money Flow, a way of measuring levels of buying and selling pressure. Lang indicated it had recently changed, suggesting that institutional buyers were showing interest in the stock, and that had made a “’W’ formation of late—another bullish signal.”
Cramer said, “Right now, the stocks at $86. [Lang] thinks it could make a move to the 200-day moving average, … currently around $97 bucks, in the coming weeks. He may be right given the recent rotation into biotech. Without the rotation, though, I’m less sanguine.”
Illumina. Lang noted Illumina stock is climbing steadily, has a strong Chaikin Money Flow and “insanely strong” moving average convergence-divergence indicator. Cramer said, “As far as Lang’s concerned, the chart is a thing of beauty.”
There are some concerns it was overbought, but that didn’t seem to bother either Lang or Cramer. Cramer said, “This thing, though, has been overbought very frequently since 2017. Now, that has never been a reason to sell the stock. Instead, you’ve done much better if you simply wait for the next pullback—and we get those all the time—and use that weakness to do some buying.”
So Lang and Cramer thing all three stocks would be a good investment, ready to start climbing or continue climbing. Is there a caveat there? Well, it’s the stock market, so of course, there is. Cramer said, “The biotechs and the biomed techs have finally started showing some signs of life and the charts, as interpreted by Bob Lang, suggest that Gilead, Celgene and Illumina have more room to run. My view? Look, if you believe the economy is going to stay strong, then maybe this rally does peter out, but you’ve got my blessing to put on some exposure on any one of these or all of them, as I think Lang is going to be dead right.”
A Product Manager with expertise in pharma marketing and sales operations