CELG: added to S&P 500.

CELG is getting an additional boost after-market after the announcement that the company is added to S&P 500 index. CELG is replacing AmSouth and is trading higher by 5.3%. As I outlined in my previous message, CELG is on a hot growth trail. The company is soon to be multi-billion dollar company and today's S&P 500 addition acknowledges that growth aspect. Being listed in the S&P 500 causes CELG to be covered in many index and mutual funds that emphasizes this index. This tends to fuel buying interest which can propel the stock price higher in the near term. As CELG has been one of the best performers in the biotech index this year, I believe that many fund managers may become interested in covering CELG.

Aside from the being added to S&P 500, I believe CELG along with other biotech companies (AMGN, GENZ, and PDLI are also covered in the FilthyRick Hive) are poised to outperform the market in the near term. Biotechs are entering into the seasonally strongest time of the year. Towards the year end are packed with many medical conferences that outline drug development trial data. Biotech stocks tend to be news driven as the investors seek to assess future earning potential of the company with favorable indications from FDA drug trials. In particular, CELG will have a strong presence at ASH (American Society of Hematology) in December of this year. Heading into this conference, we may expect relatively stronger performance of the stock as investors anticipate many favorable trial data for the drugs in the pipeline.

Other than the catalysts stemming from the update on the drug pipeline during the medical conferences, biotech stocks also have very strong fundamentals. Unlike the bubble era we had seen in late 1990's and early 2000's, most mid to large cap biotech companies now have real earning with great growth potential; their research investments are finally bearing fruits. After seeing some buying interest in the sector in 2005, biotechs struggled in 2006 as the hedge and mutual fund managers overly emphasized the energy and commodity sector. As the energy and commodity hype dissipates (yes, global economies are slowing down as evidenced by many countries' economic indicators), the money is rapidly being rotated away from the energy and commodity sector and being put into somewhere else. I believe the biotech sector may be a beneficiary of this trend. Biotech stocks are not exposed to economic cyclicality and earning growth aspects are not in question. The companies in economically sensitive sectors such as retailers, industrials, housing, commodities, as well as transportation may face uncertain earning outlook. In fact, many biotech companies' earning growth is accelerating as their products are marketed for the large untapped area of oncology, hematology, immunology, etc. Biotechs' PE and PEG ratio are currently much lower compared to what they have been historically. These sound industry fundamentals are likely to serve as a safe haven for investors in this uncertain market condition. CELG may also benefit from this trend.

After the market close, Merck announced that it is paying 1.1 Billion to purchase small biotech company called Sirna Therapeutics (RNAI). RNAI is up near 100% as MRK is paying hefty premium. As large pharmas look to biotech companies for acquisition targets to fuel their growth and as biotech earning outlook continues to solidify, biotech companies should see exciting times ahead.