Yesterday, I was on Komodo Island, Indonesia, as part of The Oxford Club’s Chairman’s Circle cruise to Australia and Indonesia.
We saw the famed Komodo dragons, which are some of the most lethal animals in the world. When they bite, they release bacteria that stop the blood-clotting process, leaving their prey (including humans) to bleed out.
The dragons roam free on Komodo Island, so I’m sure glad that I had a guide to make certain we didn’t become dragon food.
If you were to take a trip to an exotic location that had hidden dangers like man-eating Komodo dragons, crocodiles or dangerous plants, surely you’d bring a guide.
Yet many investors try their hand at speculating on small cap biotech without having an expert help them. And it’s not that these investors can’t figure out a good stock from a bad one, but in small cap biotech particularly, the waters are rife with danger if you don’t know what you’re doing or don’t follow someone who does.
There are lots of great stories in biotech – amazing new drugs with the potential to cure horrible diseases. And let’s face it, investing in these companies is uplifting. You’re investing in life. Who wouldn’t want to be part of something that saves or drastically improves the lives of people who are suffering?
But it’s important to slow down and understand the forces that move these stocks.
In my advisory service Lightning Trend Trader, I’ve boiled my stock-selection process down to three characteristics that make for a good biotech trade.
- Binary events. You want a company that has a significant upcoming catalyst. These catalysts can be clinical trial data, FDA committee meetings or approval, an earnings release, partnership announcements, etc. Biotech stocks tend to respond strongly to both good and bad news, so if you want to see quick results, buy the stock ahead of an upcoming catalyst.
- Unloved or undercovered. My training as an analyst was with an ultra-contrarian Wall Street research firm. We didn’t issue recommendations unless they went against the consensus. So when I pick a biotech stock, I prefer it not be the darling of Wall Street – yet. When an analyst comes around to our side, it’s an important event. It can – and often does – act as a catalyst, pushing the stock higher.
- Flat price action. I prefer a stock that isn’t doing a whole heck of a lot in terms of price movement. That way, it has a better chance of being off people’s radar. Even if it’s a popular or well-known stock, if the trading activity has been flat, it allows the stock to build up steam for the next move higher. The stock is unlikely to catch the eye of momentum traders if it’s flat, so the stock should be in strong hands. Once it gets moving higher, you shouldn’t see a lot of sellers.
This is the strategy that helped my subscribers earn a gain of 775% on NPS Pharmaceuticals (Nasdaq: NPSP) and more than 400% on Celldex Therapeutics (Nasdaq: CLDX). In fact, it led us to the best track record in Oxford Club history, with the average position up 100.1% in just four months.
If this strategy makes sense to you and you’re interested in learning more about Lightning Trend Trader 100% risk-free, click here. But today is the deadline to get in on this offer. At the stroke of midnight tonight, the opportunity will be lost.
View original at: Investment U
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