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Case in point: biotech. The Nasdaq Biotech Index [IBB
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] exchange-traded fund is a sell, at least from a technician’s perspective. A look at the chart shows that IBB’s uptrend line is broken, meaning the ETF’s rate of ascent has changed. Put simply, the momentum’s gone because there are more sellers than buyers right now. When this happens in a group as beloved as the biotechs, it usually indicates that the good news is priced in and a decline is coming. So investors should get out.
On the fundamentals side, though, the explanation’s not so easy. Maybe this Nasdaq Biotech ETF is a sell, but individual biotech stocks depend largely on a company’s performance. That’s why Vertex [VRTX
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] can be up 30% in 2008, and Amgen [AMGN
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] up 25%, while Human Genome Sciences [HGSI
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] was down 80%. So if you’re playing this sector, Cramer said, the key is to select specific names from among the group.
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Cramer’s fave biotech? Celgene [CELG
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]. He expects the company to grow earnings 30% for the next three to five years, and the same goes for revenue. But still CELG is trading at just 23 times earnings. That’s way too cheap when you consider the strong balance sheet, great management and the potential for Celgene’s Revlimid, a blood cancer drug with multiple indications that could treat as many as 1.5 million patients.
CELG’s fallen to just under $50 from $77. The stock’s lagged its peers due to fear of the company lowering its earnings-growth forecast. Management did recently guide lower on currency-translation concerns and an overall conservative outlook, but they still expect annual growth of 25% to 30%. So Cramer thinks Celgene is setting itself up for another underpromise, overdeliver report at the next quarter.
The charts say sell, but the fundamentals look good to Cramer. Especially CELG, he said, the best and cheapest in the group.
Join Cramer live in the studio for Mad Money: The State of Cramerica, a special town hall-style show on Wednesday, Jan. 21. Get your free tickets here!
Jim's charitable trust owns Celgene.
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