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Cramer’s medicine makers: 3 healthy buys?

Biotechs have been on fire: Cramer
VIDEO9:5309:53
Biotechs have been on fire: Cramer

(Click for video linked to a searchable transcript of this Mad Money segment)

At this time of year Cramer says certain stocks become anointed by Wall Street. That is, select names will attract buyers simply because they've already made big gains.

"Through the end of the year money managers often buy these winners, if only to show clients how smart they are," Cramer explained.

Because Cramer believes these winners will keep on winning due to the mechanics of the money management business, he advocates buying now – ahead of an expected advance.

"And when you look at 2013's best performing health care stocks in the S&P 500 the top pure biotech plays are Celgene, Regeneron, and Gilead," Cramer said.

The phenomenon of window dressing would suggest these stocks should have more room to run. But do they? To either confirm or deny the thesis, Cramer often consults technical analysis. The following technical analysis was provided by Bob Lang, the founder and senior strategist at ExplosiveOptions.net.

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Celgene

Up 87% year to date, patterns in the charts of suggest to Lang it's a buy on a pullback.

Although Celgene has had a bullish run since mid August on high volume, he also notes price action has been weak more recently.

Therefore, Lang suggests waiting until the stock pulls back to its 50-day moving average, which is around $140. As long as Celgene holds above that key moving average, Lang would do some buying in anticipation of a big run into the end of the year.

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Regeneron

With gains of 73% year to date, Lang points out that Regeneron stock has not only marched higher it's broken out over a double top on strong volume, hitting a new all-time high. That's very bullish.

However he also notes that both the relative strength index or RSI and the Williams %R oscillator are both in overbought territory. Therefore, Lang suggests waiting for a sell-off before establishing a new position.

Chart patterns suggest to Lang that there should be a floor around $275.

Gilead

With gains of 70%, Lang says that exhibits one of the best trend-lines in biotech. This stock is advancing almost in straight upward fashion. And he adds the advance has happened on high volume, a sign of conviction that the advance is warranted.

Combine the trend-lines with the phenomenon of window dressing and Lang thinks Gilead can keep roaring.

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