Back To Biotech: Slow & Steady
Even after Tuesday’s “seductive” oversold bounce, Cramer said that Homegamers should recognize the similarities between this market and the 1990 correction, which was spurred by the collapse of the commercial real estate market as opposed to today's troubled that are residential-based. Seventeen years ago, the stocks that did best in the downturn were high growth pharmaceutical and biotech names. Cramer expects the same to be true now.
More important than making money right now is preserving capital, and in that vein Cramer recommended Celgene and Genentech as two steadier biotech stocks with less risk because of their high profile advanced cancer treatments. Remember, people don’t stop taking their medication no matter how bad the economy gets. And companies don’t stop trying to cure cancer, either.
What makes these stocks relatively stable, according to Cramer, is the notion that they both lend themselves to label expansion – that is, while the companies have indicated their cancer drugs are specific for certain types of cancer, it can be assumed they can work for many other kinds of cancer as well.
Celgene is pretty much a one-trick pony, albeit with a great trick. The stock trades almost entirely on Revlimid, its drug for a type of blood cancer, which the company has signified could expand to treat other cancers as well. It is also one of the few companies Cramer follows that has earnings visibility as far as 2012.
Genentech doesn’t have as good a story – and the stock has been down a cruel 7.6% for the year – but it does make several successful drugs, Cramer said. Among them is Avastin, the miracle colon cancer drug that could become another beneficiary of label expansion as the FDA studies its effects on breast cancer. Cramer thinks Genentech is simply too cheap after being beaten down so much.
The bottom line is that Cramer believes Celgene and Genentech belong to a small group of stocks that have the potential to make money in this uncertain environment but should, at the very least, preserve it.
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