Biotech Blastoff Raises Expectations for UBIO and NVO
The Nasdaq Biotech Index (NBI) rallied an impressive 5.95% on April 5th. The conventional wisdom thrown around Wall Street was that the rally came after the U.S. Treasury passed a new set of rules to prevent any more U.S. drug companies from merging with foreign companies in order to pay lower U.S. taxes. The new rules, announced Monday, led to the halt of the planned merger between Pfizer (PFE) and Allergan (AGN). The big buying frenzy was partially fueled by investors who covered short positions. But the selling gained strength when Allergan’s CEO suggested in an interview that with the Pfizer merger being off the table, Allergan would start to look for other companies to buy. With prices being so beat up in the sector, investors started to buy a wide variety of biotech stocks.
However, this was not an unexpected breakout. In fact, in our April 4th issue of the EBIS Report, we noted: “The biotech sector is at a key decision point along with the overall stock market. In our previous post we asked if biotech was dead money. At that time it surely looked as if it was. But the stock market is in the business of making fools of us all, which means that as soon as we penned the words to the requiem mass for the sector, the market would have other thoughts. Indeed, it would be a post-Easter miracle if the biotech sector breaks out and starts on a momentum run. But that’s precisely what investors should be looking for.”
Our portfolio of biotech stocks had a good day and is well positioned to prosper if the rally continues. Especially good performance was noted in our trio of very speculative stocks – Argus (ARGS), Ziopharm (ZIOP) and Juno (JUNO) – all recommended earlier this year.
We have two updates on current positions.
Alert – ProShares Ultra Pro Biotech ETF (UBIO) – Raise the Sell Stop to $25 from $22, effective 4/7/16.
Alert – Novo Nordisk A/S (NVO) – Increase Buy Range to $55-$59 effective 4/7/16. Raise Sell Stop to $49. Initially recommended 12/21/15. Bought at $55 on 12/21/15. 4/1/16 closing price $54.98. Sell Stop at $49.
Novo got a nice boost on 4/6/16 when a UN report noted that Diabetes, the focus of the company’s business model is on the rise around the world. Novo is all about Diabetes treatments and holds leadership positions in several categories of medications to treat the condition. Novo paid its annual dividend to shareholders on 3/18/16. The company raised its dividend to $0.7 cents per share this year, up from last year’s $0.53 cents per share. The increase represents a 32% improvement on the payout. Novo is our stock of the year.