Tue Feb 25 2014
Live Index (1454 articles)

3 Ways to Strengthen Your Investing DNA

Have you ever attended a party you consider truly memorable? I did, and I’ll tell you about it shortly. First I have a few words from the frontiers of investment research.

I’ve had the privilege of working alongside some practitioners of the work of Harry Markowitz, William F. Sharpe, Franco Modigliani and Myron Scholes — all winners of the Nobel Prize in Economics.

Perhaps you are more-familiar with the legacy of their work than their names: Markowitz’s modern portfolio theory … Sharpe’s capital asset pricing model … Modigliani’s studies of macroeconomic life cycles … and the Black-Scholes option pricing model.

But it may surprise you that there are plenty more gifted intellects working right now in 2014 who are changing the way we research, invest and even live … and their field of specialty isn’t even finance!

And that brings me to a party I remember clearly, 10 years after attending it: the “TIGR party.”

These Scientists Rank Among
World’s Brightest Financial Minds!

A Ph.D. chemist friend invited me to a reception in Rockville, Md., attended mostly by scientists in chemistry and the biological sciences.

I was able to mix well with this affable, engaging crowd. They were perfectly comfortable with the usual chit-chat on pro football, movies, music, current events and even investments.

But as the conversations went on, I realized I was in the company of brainpower light-years beyond anything I had ever encountered in the investment business.

It turns out that many of the attendees had worked with the legendary Craig Venter, the visionary founder of The Institute for Genomic Research (“TIGR”). Venter and his team won the scientific race to sequence the human genome. Many people at the gathering were principals of startup genetic research firms.

I have to admit that this relatively new branch of science has me in awe. But in a sense, our research techniques are similar.

The DNA of Investing

To me, the billions of “instructions” in a DNA molecule are like the computer code that I use for investment research — though vastly more complex.

I think the super-brainy group I was mixing with at the TIGR party will come up with benefits to humanity well-beyond any intellectual developments from my chosen fields of finance, economics and investments.

So here’s a question I expect 100% of you to get correct: Should the work of these brilliant genetic scientists be incorporated in an overall investment plan?

The answer for me, and subscribers to my Global Trend Trader service, is a resounding YES!

I am convinced the biotechnology industry is destined to achieve huge growth. As the average age increases in most developed nations, the need for medications will expand geometrically. Biotechnology holds the promise of individualized treatments based on each person’s unique genetic makeup.

The investment challenge is picking winners from the close to 250 biotech firms listed on major U.S. securities exchanges. Some crucial considerations include:

  • ADEQUATE FUNDING for the expensive and lengthy research and testing required for new medical treatments.
  • REGULATORY APPROVAL before a new development can go to market. If an expensive research effort fails to gain approval from the regulatory bodies like the Food and Drug Administration, a firm’s major commitment can bring nothing but red ink.
  • MARKETABILITY AND PROFITABILITY are as important for biotech as any industry. A scientifically brilliant development won’t help a firm’s stockholder-backers unless the product has a large market willing to pay the right price. Remember, even super-smart scientists are not necessarily marketing strategists and business practitioners.

While I think biotech as a whole will thrive in the years ahead, picking individual winners is still a huge challenge. And while there is uncertainty involved in the science, testing, regulation and marketing, keep one thing in mind.

As long as you do your research and a reality check before you put real money to work, you can manage your expectations on the downside while being prepared for some pretty impressive potential upside.

3 Ways to Strengthen Your Investing DNA

The table above lists some interesting companies in three distinct leagues.

1. Bigger Biotechs

As with most other sectors, an industry’s big, established leaders tend to offer the safest investments. The four big boys in the top section have already achieved success.

Their size and experience give them the ability to fund diverse projects that give them some assurance of successes.

Their intentions — clearly apparent in their multibillion-dollar R&D spending — are to extend their successful runs. These companies know the biotech game and occupy the top of it.

2. R&D Front-Runners

But as with many industries, the biggest potential percentage gains are with the small up-and-comers who are still plowing all available resources into ground-breaking research.

The four biotech firms in the middle group are doing exactly that.

In this industry where you don’t hit the jackpot unless you throw chips onto the table, the $ 919.8 million R&D of Vertex Pharmaceuticals (VRTX) represents more than three-quarters of its $ 1.2 billion in revenue.

Notice that VRTX seems to be making wise bets with its R&D expenditures, as analysts tracking the stock expect the firm’s investment in its future to pay off with compound annual earnings share growth over 44% over the next five years.

The same goes for the others in the middle group. Analysts expect Celgene Corp (CELG) andRegeneron Pharmaceuticals (REGN) to each grow earnings 21.4% annually over the next half decade, with Ireland-domiciled Shire PLC (SHPG) expected to grow it EPS at a respectable 17.2% annual pace.

3. A Strong Earnings Pulse

Real adrenaline-pumping growth is possible for the quartet of smaller biotechs in the bottom section of the table.

Analysts tracking United Therapeutics (UTHR) forecast the firm will more than double its earnings per share during each of the next five years. UTHR’s three smaller companions in the bottom section will likely grow their bottom lines at 31% to 67% annual paces over the same period.

Has all this whetted your interest in this intriguing industry, but left you somewhat befuddled about how to navigate the complexity of this promising field?

Well, the many interwoven forces involved in transforming cellular biology theory into healthcare products and then to corporate profits have already given my Global Trend Trader subscribers a double-digit gain.

And I think that’s just for starters.

Happy Trading!

P.S. Have you heard about a scientist named Wegeng? Right now he’s just one of the silent workers who will change the course of life for all Americans. You deserve to know how this man’s work will affect you (positively), and even make you a great deal of money this year. Click here to see how.

Rudy Martin, editor of Global Trend Trader, is the President at Acamar Global Investments, with 25 years of experience serving institutions and high net-worth individuals.

Rudy started his investment career in 1983, co-managing a $ 2 billion private investment portfolio for Transamerica. Later, he went on to Wall Street as an equity analyst for Dean Witter and traveled globally, serving major institutional equity investors. In 1995, he joined Fidelity Investments as a Senior Investment Analyst for a series of multibillion-dollar fund portfolios.

During his career, Rudy has received awards for institutional investing and is widely quoted in the financial press and on television about topics related to global investing and emerging markets. For more information on Global Trend Trader click here.

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