Two Stocks Stand Out In Red-Hot But Volatile Biotech Sector

Two Stocks Stand Out In Red-Hot But Volatile Biotech Sector

The enticing if volatile biotechs continue to intrigue investors. Some of the stocks in the fast-growing sector are more alluring than many others, but make no mistake: Biotechs should not be ignored!

“Biotech stocks are still in favor with investors for all the right reasons: constant M&A, solid clinical data, regulatory reviews, upcoming scientific conferences, selective stock picking, and technical support,” says veteran biotech analyst John McCamant, who is also editor of the Medical Technology Stock Letter, in Berkeley, California.

The announcement this morning that Teva Pharmaceutical Industries (TEVA) has offered to acquire Mylan NV (MYL) for $82 a share, or $40 billion, is the latest example of the rash of M&As in the biotech arena.

“The abundant cash flow from unprecedented takeovers and even share buybacks,” notes McCamant, “coupled with positive fundamentals despite high valuations make us sound like broken record – biotech sentiment is high.”

He notes that the pullback in biotech stocks at the end of the first quarter “didn’t break the index’s technical support levels and, if anything, appears to have created attractive opportinities at flush hedge and mutual funds and individuals to put cash back into the sector,” says McCamant. Right now, these two are the standout biotech stocks which M&A traders as well as opportunistic investors are focusing on.

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Teva’s offer to acquire Mylan has prompted S&P Capital IQ to reiterate its buy recommendation on Mylan. One reason: Teva will have to sweeten the pot, which means Mylan’s stock potentially faces more upside swing.

“Teva would need to raise its (stock-and-cash) offer price and lower the stock component to get Mylan to agree to an offer,” says Jeffrey Loo, analyst at S&P Capital IQ. So he has raised his price target for Mylan by $13 a share, to $92, or 22 times his 2015 earnings estimate. Since the buyout announcement, Mylan’s stock has jumped as of yesterday 8.77%, to $74 a share. Teva’s stock also leaped, to $64, up 1.25%.

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Two Stocks Stand Out In Red-Hot But Volatile Biotech Sector

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