The biotech stocks with higher market caps were hit in a broadsell-off on Wednesday, along with drug stocks and consumerproduct stocks, as investors moved into cyclical stocks.
"There seems to be a huge sector rotation going on," said Alex.Brown & Sons Inc. analyst Amy Berler. "Anything defensive --stocks that aren't economically sensitive -- got clobbered."
The market as a whole rose, with the NASDAQ composite indexup 3.98 to 629.72 and the Dow 30 up 12.29.
The trading volume indicates that much of the sell-off was byinstitutional investors, said Sutro & Co. analyst MargaretMcGeorge.
Paper stocks, technology stocks and some of the industrialsrose, said Berler. "The stock market does try to anticipatewhere the economy is going. So if the market believes interestrate cuts will help the economy, it goes to the economicallysensitive stocks that will benefit. Some of the defensive issueshave already run up so much, you've got to turn to thelaggards."
"On the margin, money is flowing from non-sensitive stocks tosensitive stocks," said Steven Resnick, senior investmentstrategist for Cowen & Co. "We're all expecting an economicrecovery which will be launched by a combination ofstimulatory fiscal and monetary policies. We're now starting toget signs that Washington wants an end to the recession."
Cowen's index of earnings estimates revisions is beginning toimprove, Resnick said. "Historically, this is a leading indicatorfor improved relative price performance in economy-sensitivecyclical stocks."
The index was at 10 percent at the bottom of the recession,meaning that for every 100 earnings estimates revisions, 10were up and 90 were down. The index is now at 25 percent.
As for how long a sell-off might last, "we've seen this pattern alot," said McGeorge. "They snap back fast. A lot of people wantto buy in. There might be a little buying (today). The interest inthis group is not going to go away."
"On a longer-term basis, you still expect an Amgen and biotechstocks in general to out-perform U.S. Steel," said Resnick.
Wednesday's sell-off wasn't nearly as broad or severe as themarketwide correction last Nov. 15. In November, first-tierstocks like Amgen Inc., Biogen Inc., Chiron Corp., Genzyme Corp.and Synergen Inc. lost between $5.50 and $8.75. Virtuallyevery other biotech issue declined as well, some by evengreater amounts.
Losses for the top-tier group were smaller this time around,ranging from $1.25 to $4.50, with some smaller issues rising,especially on news.
ImClone Systems Inc. shares (NASDAQ:IMCL) were among thegainers on Wednesday, following Smith Barney analyst DeniseGilbert's positive comments. Gilbert initiated coverage on theNew York company, which she described as one of the last ofthe "classical" biotech companies, with a "buy" rating. "ImClonehas a powerful product portfolio targeting some of the mostexciting disease areas," Gilbert wrote. ImClone, which isdeveloping drugs based on natural molecules, rose $1 to $27.
Cytogen Corp. (NASDAQ:CYTO), whose OncoScint OV103 imagingagent was to be reviewed today by a Food and DrugAdministration advisory panel, fell more than $5 duringtrading before recovering to close down $1.75 at $28.13.
-- Karen Bernstein BioWorld Staff
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