Why I'd Get Booed at a Value Investing Conference

Why I'd Get Booed at a Value Investing Conference
By Dr. George Huang, editor, S&A FDA Report
October 23, 2009

"We never touch biotech."

My friend and value-investing expert Dan Ferris jotted down the quote from Alex Roepers, a value hedge-fund manager with decades of success, and passed it to me with a smirk...

We were attending the Value Investing Congress in New York City earlier this week. Among the speakers were hedge-fund legend Julian Robertson and famous hedge-fund managers like Bill Ackman and David Einhorn.

As you know, most value investors – including these guys – are disciples of Warren Buffett, who famously said he never invests in anything he doesn't understand. Hence, Roepers' reluctance to buy biotech.

When I told other conference goers I was a biotech specialist, many suggested I get a refund. Even though presentations included a prison operator, a satellite communications firm, a teen retailer, and gold stocks... biotech was just too "out there" for these value guys.

Many individual investors feel the same – they're intimidated by the science. The ones that do venture into biotech are mostly looking for lottery tickets.

That's great news for the rest of us...

Because most smart and disciplined value investors keep their distance, it's easy to find huge price distortions. Individual investors can find more value-like setups in biotech than in any other market sector. You just have to know where to look...

Take one of my favorite trades, QLT, for example. QLT is a small-cap eye-care specialist undergoing massive corporate structuring. The stock hovered around $2.50 from last November to June. But the company had almost $2.50 per share in net cash.

At those prices, investors got two profitable drugs worth at least $2 per share for free. That's a situation any value investor would kill for. FDA Report subscribers made over 80% as the market came around.

And it's not unique... The FDA causes most of the incredible price distortions in the biotech sector. Only with the FDA's blessing can a new drug make it to market. But a negative ruling by the agency can crush a stock in a matter of minutes.

Last year, investors deserted European biotech UCB after the FDA rejected its Crohn's disease and rheumatoid arthritis drug Cimzia. During the selloff, the company traded at half the industry average sales multiple. Even if the FDA never approved Cimzia, UCB was downright cheap. When the FDA finally did greenlight the drug, shares soared more than 50%.

So you see, the instantaneous panic selling common to biotech creates huge value. And it happens dozens of times a year. (If you're looking for upcoming value opportunities, check out last week's essay. The first two decisions came and went without much movement. But I've got my eye on the next three for bargains.)

This Fall Will Be Crazy for These Biotech Stocks

Speculating Just Got Cheaper

I enjoyed the Value Investing Congress. It's always great to hear smart guys talk about where they find their best ideas. And I was thrilled to hear the value crowd wants nothing to do with biotech...

The fewer smart guys in sector, the more money left for the rest of us.

Good investing,

George Huang

What the world's best investors are recommending now
2 stock picks from New York conference.

Today's entertainment: This season's "must have" sweatshirt
Buy one for every global warming dupe you know...

Doug Casey: Why getting an MBA is a stupid move
"An MBA is worse than useless..."

•	Insurance giants climb... Travelers and Chubb hit new highs.
•	More "spending stocks" rally... Avon, Steiner Leisure, Inter Parfums jump to new 52-week highs.
•	Pipeline surge continues... Kinder Morgan, Boardwalk, TEPPCO hit new highs.
•	Earnings today... Exelon, Microsoft, Schlumberger, Whirlpool.

	Last	Change	52-Wk
S&P 500	1097.91	+0.94%	+16.73%
Oil (USO)	40.76	+0.77%	-31.35%
Gold (GLD)	104.23	+1.02%	+35.00%
Silver (SLV)	14.44	+1.51%	+88.95%
U.S. Dollar	75.28	-0.01%	-9.39%
Euro	1.50	+0.11%	+12.20%
VIX	21.49	+0.28%	-69.44%
HUI	448.69	+0.60%	+120.38%
10-Year Yield	3.40%	-0.02	-0.47

Advertisement

Company	Sym	Industry
Thermo Fisher	TMO	tech
Hellenic Telecom	OTE	telecom
NII Holdings	NIHD	wireless telecom
Telecom Argentina	TEO	telecom
Aspen Insurance	AHL	insurance
Grac	GGG	machinery
Skechers	SKX	shoes
Inter Parfums	IPAR	perfume
Telefonica	TEF	telecom
Chubb	CB	insurance
Ameriprise	AMP	asset mgmt
Boardwalk	BWP	pipelines
F5 Networks	FFIV	network equip
CAE	CAE	defense
Thomas & Betts	TNB	eletrical equip
Steiner Leisure	STNR	spas
Freeport-McMoRan	FCX	copper & gold
TJX Companies	TJX	dept stores
Check Point	CHKP	software
Edwards	EW	medical devices
OGE Energy	OGE	utilities
Novellus Systems	NVLS	semiconductors
Ferrellgas	FGP	industrial gases
Taseko Mines	TGB	copper mining
3M	MMM	conglomerates
BT Group	BT	telecom
Sara Lee	SLE	packaged food
Lubrizol	LZ	chemicals
Logitech Intl	LOGI	computer equip
Spectra Energy	SEP	pipelines
CorpBanca	BCA	bank
IRSA Investments	IRS	real estate svcs
Travelers	TRV	insurance
Kinder Morgan	KMP	pipelines
W.W. Grainger	GWW	industrial equip
Alexion Pharma	ALXN	pharma
Partner Comm	PTNR	wirless telecom
NICE Systems	NICE	computer equip
Duncan Energy	DEP	pipelines
iGate	IGTE	computer svcs
Kimberly-Clark	KMB	hospital supplies
Avon Products	AVP	make-up
Penn West	PWE	oil & gas drilling
TEPPCO Partners	TPP	pipelines
Baytex Energy	BTE	acquisitions
Cheniere Energy	CQP	pipelines

Company	Sym	Industry
Ultralife	ULBI	electrical equip
First Commonwealth	FCF	bank
Premierwest	PRWT	bank
First Merchants	FRME	bank
LaBranche	LAB	broker
Hampton Roads	HMPR	bank
Citizens & Northern	CZNC	bank
Star Scientific	STSI	cigarettes
Cape Bancorp	CBNJ	bank

Why I'd Get Booed at a Value Investing Conference
October 22, 2009

Commodity Q&A: The One Number You Need to Watch for Natural Gas
October 21, 2009

What I'm Watching This Morning Could Hold the Key
October 20, 2009

This Choice Will Either Ruin You or Save You a Fortune
October 19, 2009

Weekend Edition: Three Gurus on Gold
October 17, 2009