Cash in on bargain basement biotech stocks

Right now, biotech stocks are cheap, ignored, and in an uptrend. And that means they're a good buy, says Dr. Steve Sjuggerud.

Four triple-digit rallies and one quadruple-digit rally that's the record for biotech stocks going back to 1983.

The biggest rally started in the late 1980s (+1,347%). The next biggest started in the late 1990s (+646%). Here in the late 2000s, the time is right again.

Actually, the time was right last year... Measured by price to sales, biotechs had gotten just as cheap as they were in the late 1990s before the great boom. And investors weren't paying any attention to the sector a pre-requisite for future massive gains. But the stock market crunch spared no sector, and the 2008 boom was over before it started.

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That's good for us: Biotech stocks are once again as cheap as they were ten years ago. Back then, the index ran from around 100 to around 800 in about a year and a half. Yes, $10,000 invested would have turned into $80,000 in less than 18 months.

Biotechs are as cheap as before the Great Boom


Then biotechs went flat for almost a decade. The AMEX Biotech Index is lower today than it was nine years ago. It's not that the companies have been duds. Sales have been increasing dramatically.

The price-to-sales ratio of the stocks in the AMEX biotech index went from over 20 in the dot-com bubble to a bottom of around three today... which is as cheap as it gets.

I can't guarantee the index will soar eightfold in 18 months, of course. I'll be the first to admit I know next-to-nothing about biotech. All I know is nothing can compete with an old-fashioned rip-roaring bull market in biotech. So I want to be on board when it arrives.

Right now, all the signals are in place in a way we haven't seen since the late 1990s.

For the first time this year, biotech stocks are both cheap AND they're in a confirmed uptrend (the AMEX Biotech Index is up 30% since March). Biotech stocks are also ignored... Clean energy and government spending are hogging the headlines.

Cheap, ignored, and an uptrend... those are the three things we look for.

The AMEX Biotech Index hit 700 on Friday. New highs for the year are just two percent above that... Technical traders might drive biotech stocks higher if they can reach those levels.

Me? I'm content to buy here. The low for the index is about 550. So your downside is less than 25% if you buy here and cut your loss at a new low. Meanwhile, your upside (as we showed in a DailyWealth last year) is over 500% in two and a half years.

Upside: 500%. Downside: less than 25%. Those are my kind of odds...

If you're looking to speculate, biotech stocks offer a cheap, ignored opportunity that's just kicked into an uptrend.

The easiest way to get into biotech stocks is through one of the many exchange-traded funds available. Check 'em out.

This article was written by Dr. Steve Sjuggerud for the free daily investment letter DailyWealth