The Surprising Sector for Overnight Gains of 172%

Lou Basenese

Tuesday, December 10, 2019

Whoever said getting rich overnight in the market is impossible doesn’t know about biotech stocks.

Yesterday, for example, ArQule (ARQL) surged 104%, and Synthorx (THOR) rallied 172%.

This isn’t an anomaly, and it’s not too late to earn similar profits.

Hands down, biotech is the hottest sector to invest in right now. In fact, for the next 33 days, three factors in this sector promise to keep delivering triple-digit winners.

Let me explain.

From Boom to Bust…

If a company develops a drug that can cure a disease that impacts millions of people, its shares will soar.

Why? Because once FDA approval is secured, the company behind the drug stands to earn billions.

And stock prices always follow earnings.

By the same token, if a drug fails, so does the stock.

This explains why biotech is a boom-and-bust sector.

The thing is, in biotech, a rising tide lifts all boats.

Let me show you what I mean…

And Back to Boom…

When you see positive data coming out of drug trials, you’ll see the entire sector rally.

And if you see negative data, the sector will drop.

For example, look at the performance of the iShares Nasdaq Biotechnology ETF (IBB), which tracks 215 biotech stocks.

This time last year, based on a crop of negative data, IBB dropped 16% in the blink of an eye.

But when positive data started coming out, a boom quickly followed.

And as you can see in the chart below, we’re now in the midst of another boom.

In fact, since September 23rd, IBB is up more than 20% and counting.

In other words, now that positive momentum is back, biotech stocks are expected to surge in the coming weeks.

But that’s not the only factor at work…

Another Buyout Binge

As Stat News’ Damian Garde notes, “Major drug companies have lots of money and a persistent need to come up with novel ideas.”

That’s why they’re paying huge sums to buy out promising drug makers.

For example, ArQule soared yesterday because Merck (MRK) agreed to buy the promising cancer company for $2.7 billion.

And Synthorx vaulted higher yesterday because Sanofi (SNY) agreed to buy it for $2.5 billion.

And here’s the key: because large pharma’s appetite to replenish their drug pipelines has never been bigger, these huge buyouts are being made for increasingly earlier-stage companies.

And when big pharma is on the hunt for takeovers, that’s when investors should be on the hunt, too.

Especially for the next 33 days…

The Biggest Buyout Catalyst is Right Ahead

Every year for the last 38 years, the biotech sector converges on San Francisco for the Super Bowl of investment conferences: the J.P. Morgan Healthcare Conference.

And the 39th annual conference starts on January 13th, just 33 days from now.

Here’s the thing. In the leadup to the conference, big pharma has a history of making headlines with big buyouts.

For example, in the run-up to the last conference:

  • Bristol-Myers Squibb announced a mega $74 billion acquisition of Celgene.
  • GlaxoSmithKline agreed to pay $5.1 billion for Tesaro
  • And on the very first day of the conference, Eli Lilly splurged $8 billion for Loxo Oncology.

And in the lead-up to this January’s conference, I expect similarly robust buyout activity.

That’s why, in next week’s column, I’ll share at least one small-cap biotech stock that could become the next big takeover.

So stay tuned!

Ahead of the tape,