Published March 12, 2014
In my opinion, the market as a whole is somewhat overvalued at this point and we may be due for a correction sometime within the next few months.
When this might occur is extremely difficult to foretell. I couldn’t help noticing that the term biotech bubble is starting to come up far more frequently in the business press and Google Trends recently.
Valuations are obviously extremely high in the biotech sector. In my opinion, they deserve to be pretty high since innovation in this field is occurring at a breakneck pace and practical new applications are showing up all over.
The problem is that, at least in the short term, stock prices reflect the market’s perception of what is going on. Since I jump in and out of stocks fairly rapidly, I have to take this into consideration in order to potentially maximize the portfolio’s return.
I was a little wary of my two biotech ETFs, iShares NASDAQ Biotechnology Index (IBB) and ProShares Ultra Nasdaq Biotechnology (BIB)–and have sold both positions. They mirror the biotech sector in general.
They’re obviously weighted heavier towards larger companies.
I can easily see them taking a hit if the market becomes a little disenchanted towards the sector as a whole. That’s basically what happened to 3D printing stocks not long ago. That’s why I got out of 3D Systems Corporation (DDD) last month.
I also have kept my position in Neuralstem (CUR), which is a company working with stem cell treatments for Amyotrophic Lateral Sclerosis (Lou Gehrig’s Disease) and down the road perhaps spinal chord injuries.
I’ve liquidated all my holdings in marijuana stocks. They’re for the most part too thinly traded and it’s too difficult to separate the wheat from the chaff. Somewhere down the line when more states legalize the recreational and medical use of marijuana, and solid stocks with solid earnings begin to become evident, I’d love to get back into the game.
I liquidated my positions in Intuitive Surgical, Inc. (ISRG). It’s an interesting company which has the potential to revolutionize surgery through the use of robotics, but for now sales of new machines are down, so that’s been reflected in the stock’s price.
I had hoped to get in on what I thought might be a resurgence of the stocks price, but when the market started to go south on this one I jumped ship.
It is also carrying out research into Intramuscular Electroporation Delivery Devices, which is a means of delivering DNA based vaccines. I don’t have the room to go into the details (for those interested, here is a link to an excellent write-up in Seeking Alpha). I have now way of knowing this for sure, but this company has the potential to revolutionize medicine as we know it and I’m proud to be a shareholder in it.
I discovered another company called FireEye (FEYE), a cyber-security firm. The company recently acquired Mandiant, for a very good price in my opinion, and earned a lot of respect by “directly implicating China in cyber espionage to gain economic advantage.” For those interested in going into this in greater detail, here’s an excellent post on the company.
“Tekmira has been able to overcome past failures of RNAi biotechs by developing what this RNAi space calls a “delivery vehicle” for the RNAi oligonucleotide. In the past scientists attempted to deliver RNAi oligonucleotides as a single naked siRNA–small interfering RNA–that would attempt to penetrate targeted cells. The problem with the RNAi sector came about when many biotechs failed to get the RNAi strand into cells successfully. This is where Tekmira’s “lipid nano particle” technology comes in.”
For those interested in looking into the pros and cons of this particular equity, I invite you to check out the entire article here.
DISCLAIMER: The investments discussed are held in client accounts as of February 28, 2013. These investments may or may not be currently held in client accounts. Investments in securities of small-cap and growth companies may be especially volatile. The reader should not assume that any investments identified were or will be profitable or that any investment recommendations or investment decisions we make in the future will be profitable. Past performance is no guarantee of future results.
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