November 9, 2015

Biotech Bets: A Mispriced Trio

Recent volatility has created an environment for biotech stocks in which company fundamentals are mispriced relative to their stock prices, according to John McCamant. Here, the editor of The Medical Technology Stock Letter discusses the current state of the biotech market and highlights a trio of well-positioned stocks currently being undervalued by the market.

Steven Halpern: Our special guest today is John McCamant, biotechnology sector expert and editor of the industry leading The Medical Technology Stock Letter. How are you doing today, John?

John McCamant: Great Steve, how are you?

Steven Halpern: Very good. Now you’ve been involved in this area since the 1980s so perhaps you’re used to the volatility, but it’s been a particularly challenging period for investors lately. Now, you emphasize that—despite this volatility—the sector really remains in great shape. What factors are keeping you bullish while so many others are running scared?

John McCamant: Well, I think what happens is people become extremely price sensitive and reactive technically, Steve, but underlying every single one of these charts of a company would be what we would call the fundamentals.

What are the products or the drug candidates? Where are they in the development cycle? What kind of intellectual property do they have? Have they been validated by third party or Wall Street?

A lot of variables. When we add those up, in particular, we just kind of go through the bigger ones, regulatory, the FDA. We have a company named Acadia that just got an acceptance today, a priority review. Those are the type of things that we’ve seen consistently out of the agency for the last few years and is it an accident that it happens to coincide with what we think is not just really a biotech bull but more of a coming of age.

Financially, particularly with low interest rates, we’ve attracted a lot of generalist money to this space. It’s a growth sector that also represents healthcare so we bring in multiple different sectors of potentially interesting investment in this space. There’s cash, the fundamentals are strong, and the last is probably most important.

Where we come in, Steve, you and myself, is we have to dig through these hundreds of companies and find the ones that are the best investments. We believe that’s what we do best, and quite honest, over the last three years, you could have bought indexes and made a good amount of money in biotech.

Going forward that will always be the best way to play this sector. Particularly if we can find specific names that have—what we would call—at balanced risk-reward ratios. That’s where we want to emphasize our investments.