What’s Moving These Biotech Stocks? – Novo Nordisk (NVO), Peregrine Pharmaceuticals (PPHM)

Typically, it doesn’t take a lot for a stock to trade with gains/losses of more than 5% in a session; it can be caused by an analyst’s remarks, sometimes it’s caused by earnings, or maybe it’s just a technical response. Sometimes the moves are warranted and other times they are not. Therefore, I am looking at several moves to determine if the stocks are presenting value or a value trap.

Novo Nordisk A/S (ADR) (NYSE:NVO)

Stock Rallies on Acquisition Rumors

Regeneron Pharmaceuticals Inc (NASDAQ:REGN) began the session with gains of 7% but then traded lower to maintain gains of 3% on Monday. The gains were caused by news that Sanofi SA (ADR) (NYSE:SNY) is aiming to buy another $500 million worth of shares in the open market. The two companies are already partners, and Sanofi is limited to the size of its investment. Sanofi has already said that it does not wish to purchase a controlling stake but judging the by the performance of the stock, investors seem to believe that Sanofi might be preparing for an acquisition offer. Regeneron does look expensive to the naked eye, but is consistent with that of other companies that have approved Orphan drugs and others in its pipeline. The company’s growing fast and is much more stable than others with the same valuation. Therefore, I think the stock might be worth buying on this news.

A Volatile Stock Rallies for No Reason

After a volatile year, shares of Peregrine Pharmaceuticals (NASDAQ:PPHM) traded higher by 5% on Monday. The stock rallied on no news but continues to trade in a steady range. At this point, I don’t trust the company. First, there were problems with the clinical study then the study was less affected than thought. There seems to be a lot of inconsistencies, therefore if data is positive for Bavituximab then I would rather pay a higher premium later then buy for a discount now.

Investors Take Profits & Stock Creates Value

European drug maker Novo Nordisk A/S (ADR) (NYSE:NVO) fell 14% on Monday after federal regulators asked for more testing for its diabetes drug. Now, I understand that a diabetes drug has sales potential in the billions, probably over $2 billion. However, this is a massive company that has several drugs that focus on the treatment of diabetes. The company has more than $13.5 billion in revenue and is growing by 15% year-over-year. Therefore, I think the pullback is a great opportunity. The stock had been trading at all-time highs, and it appears that the loss is more of a technical pullback from the stock having two decades of nothing but gains. I would buy on this news.

Buy on Fundamentals & Not Speculation

While Novo sunk lower, large cap stock Sanofi SA (ADR) (NYSE:SNY) rallied 3.5% on news that it was increasing its stake in Regeneron. For the last year many have speculated that it could try and acquire the biotechnology company, and I believe it’s highly likely. However, you should never buy a stock due to the anticipation of an acquisition; it has to be for fundamental reasons. Therefore, buy the stock for its 3.60% yield, its large cash position, and its strong pipeline. If the acquisition occurs then it’s an added bonus.

Conclusion

A stock’s performance during a typical day does not necessarily mean that a stock will break out or trade lower over a period of time. Too often we associate stock performance with fundamental performance, yet it’s the inconsistencies between these two factors that create value. The ability to identify these inconsistencies is a psychological behavior-changing skill that very few investors are able to perfect. In the past, I have talked about this subject in great detail, and have taught investors how to change these tendencies to return large gains. My advice is to become a smart investor, by learning how to logically assess what caused a stock to move compared to its valuation. Then, if there is a distinction in value you are able to capitalize on the value.

The article What’s Moving These Biotech Stocks? originally appeared on Fool.com and is written by Brian Nichols.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Comments
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months. Our beta is only 1.2 (don't click this link if beating the market isn't important to you).

Lists

Richest Doctors in the World

The Best Movie Sountracks Ever

The Highest Grossing Musicals on Broadway

The Most Successful Reality TV Stars

Cheapest Cities to Visit in the US

Most Expensive Summer Camps

Most Expensive Animals in the World

Most Expensive Specialty Crops in the World

Movies That Took Ages to Make

The Longest Hollywood Films Ever Made

Most Expensive Concert Stages

The Richest Bands of all Time

10 Most Corrupt Countries 2013 List

10 Countries with the Highest Quality of Life Index

Most Expensive Mattresses in the World

5 Smallest Countries by Land Area

The Ultimate Heartbreak Songs

Richest Teenagers in the World

10 Most Haunted Places in America

10 Best Places to Retire in Florida East Coast

Top 10 Places to See Before You Die

Top 8 Countries in the World Where Justice Prevails

10 Richest States in America

15 Wealthiest Countries in the World

Richest Singers in the World

Most Expensive Tasting Menu in New York City

Most Expensive Baby Items in the World

Most Expensive Hotel Suites in Vegas

Most Expensive Brunch in New York City

Most Expensive Beef Cuts in the World

25 Best Colleges to Get a Job

Top 10 US Supermarkets

The 25 Most Dangerous Cities in the World to Visit

Most Expensive Xbox Games

Top 11 Cities Where Billionaires Live

Top 10 Most Charitable Companies in America

Most Expensive Seafood in the World

The 10 Wildest Conspiracy Theories

The 10 Best Job Markets in the US

Top 10 Accounting Scandals of All Time

The 25 Biggest Cities in the World

Top 10 Best Paying Virtual Jobs

Most Expensive Leather Shoes in the World

Top 6 Things to Buy in March

The 10 Most Stressful Jobs in America – 2014 List

Top 10 Jobs for Introverted People

Top 10 Honeymoon Destinations in the World

Top 10 Highest Paying Jobs in the World

Most Expensive Day-Care in New York City

The 10 Cheapest Places to Retire Abroad

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!