The Motley Fool Previous Page


These Stocks Avoided the Market's Squeeze

http://www.fool.com/investing/general/2012/06/22/these-stocks-avoided-the-markets-squeeze.aspx

Rich Duprey
June 22, 2012

The Dow took a shellacking after Fed Chairman Ben Bernanke said he'd continue his half measure known as Operation Twist, a program that artificially keeps interest rates low, but which hurts a large number of financial institutions by encouraging borrowers to refinance at lower rates. It clears the books of banks and mortgage lenders of higher-interest loans, and replaces them with others that have far less favorable terms. And a weak global economy ain't helping things either. The Dow tumbled 250 points, or 2%, yesterday on the news, yet some stocks went on their own joyride, jumping by double-digit percentages in the process.

Resist the urge to high-five everyone in the cubicles next to you, though, because smart investors won't celebrate until they know why their stock surged. Without a fundamental basis for the bounce, these stocks can quickly make the return trip down.

Piggybacking on good news
Although economic concerns drove most of the market news, it was growth catalysts that were sending Onyx Pharmaceuticals (Nasdaq: ONXX  ) higher after its multiple myeloma treatment Kyprolis received a unanimous vote of confidence from an FDA advisory committee. The development sent Onyx's shares surging 43% higher.

Interestingly, Celgene (Nasdaq: CELG  ) plunged yesterday, after it withdrew the application for an expanded indication for multiple myeloma treatment Revlimid for consideration by European regulators. The drug developer chose not to publish the negative decision it expected was coming. The contrasts between the two are stark, but with Revlimid on the market in the U.S., and Kyprolis still needing to be approved, there could still be a role reversal. After all, many analysts were surprised by the vote in Onyx's favor, because there have been significant concerns about side effects impacting the heart, lungs, and liver.

Onyx's treatment is tied to Revlimid, though, because Kyprolis is intended for patients who've previously received Revlimid or Takeda Pharmaceutical's Velcade. As surprising as the vote might be, analysts are now even more confident it will receive approval.

Many investors thought Onyx was overvalued even before the grand leap in its stock price, and CAPS member naughtyguy is left scratching his head over the $4 billion market cap the biotech has been assigned. As much as yesterday's developments bode well for the future, the current valuation looks rich to me. So I've rated it to underperform the market indexes, even though it may very well turn into a long-term winning investment.

Tell me in the comments section below, or on the Onyx Pharmaceuticals CAPS page, whether it's worth these lofty valuations, then add the stock to the Fool's personalized stock-tracking service to be alerted immediately when the FDA makes its decision.

Hail Mary pass?
While Chelsea Therapeutics (Nasdaq: CHTP  ) doesn't have a pending approval, like Onyx, the biotech is working hard to cure the whiplash investors got when an FDA panel recommended its drug Northera receive approval, only to get crushed when the regulatory agency rejected the recommendation. It might be something for Onyx investors to keep in mind.

Yet, the FDA's problems with Northera stem from the trials Chelsea ran that had the bulk o