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Four Must-See Charts: Stem Cell Stocks - 33123 views
By Stockpickr Staff
Posted on July 2, 2009
Developments in the stem cell world are starting to get very interesting.
On Tuesday, General Electric (GE) signed an exclusive license and alliance pact with Geron (GERN) to develop and commercialize cellular assay products derived from human embryonic stem cells for use in drug discovery, development and toxicity screening. Financial terms of the deal weren’t disclosed, but investors clearly saw the deal as a major positive for Geron after the shares soared more than 18% on the news.
This is a very big step for stem cell research development and shows that big firms such as GE are eager to get into the business by partnering up with existing stem cell companies, instead of launching their own stem cell divisions. The implications of this move by GE could force other large companies that want to get into stem cell research to look at partnering up with established players in the sector.
Some of the companies that could see new business flow their way include Aastrom Biosciences (ASTM), Life Technologies (LIFE) Osiris Therapeutics (OSIR) and Neuralstem (CUR). Some of these firms are far from profitable or lack a single stem cell based drug or product that is currently on the market.
But now is probably not the time for investors to focus on the lack of earnings or a product. Most of the firms that operate in the stem cell space are still very early into the development stage considering that the controversial practice was banned for more than eight years by former President George Bush. Thanks to the Obama administration, that ban on new embryonic stem cell research and federal funding was finally lifted back in March, so now government money is open to flow into the sector. The potential for stem cells is enormous and now that the political climate has changed the future is starting to look even brighter.
The GE-Geron deal demonstrates that well-capitalized companies see the huge potential in stem cell research and development. If companies like GE see the potential for stem cell technology to bring new and amazing drugs to market, then it’s probably safe to say that investors are going to start searching for the long-term stem cell winners.
With that in mind, let’s take a look at a few stem cell stock charts that could be setting up to make a big move.
Geron (GERN) develops human-embryonic-stem-cell-based therapeutics. As mentioned above, Geron inked a deal with General Electric on Tuesday to provide stem cells to General Electric’s GE Healthcare for use in tools that will test for toxic effects of drug treatments.
Looking at the chart below, you can see that shares of Geron spiked on the news but found some resistance as the stock moved over $8 a share. If the stock can manage to finally break above this tough area of $8 to $8.50, then it could set up to make a run at the next area of significant resistance, which is $10 a share. A move above $10 for Geron would be significantly bullish and it would demonstrate the stock is finally strong enough to take out the area the bears have had control of for over the past three years.
If this stock manages to pullback below $7 a share, consider it a gift and great buying opportunity, as long as the stock stays above the 50-day moving average.
It’s also worth noting that over 16% of the float for Geron is currently sold short as of June, so a move above the $8 to $10 area could spark a gigantic short squeeze that could send this stock significantly higher.
Next up is StemCells (STEM). This company is engaged in the discovery and development of cell-based therapeutics to treat damage to, or degeneration of, major organ systems. StemCells, like Osiris Therapeutics, focuses on therapies using adult stem cells, which are generally more plentiful than embryonic stem cells.
Check out the chart below, and you can see that shares of StemCells have been trading in a range since March of around $1.90 to $1.50 a share. If the stock can manage to find some support at the 50-day moving average of $1.68, which is where the stock currently sits, it could be setting up to make a run back towards the upper end of its trading range at around $1.90 a share. Shares could also drift lower towards the 200-day moving average of $1.55 and still be in okay shape.
The key area to watch for STEM will be a break above the $1.90 area. If that can occur, the stock should make a run back towards $2.50 or even $3.00 a share. Keep in mind that more than 6% of the float is sold short as of June, so any bullish action could cause the bears to scramble to cover their short positions.
Another interesting stem cell stock is Celgene (CELG). The drug and cell therapies that this company develops are designed to treat life-threatening diseases or chronic debilitating conditions. Celgene is a profitable biotech company and is well-capitalized, with more than $2.3 billion in cash on the books and only $24.7 million in debt. The company’s quarterly revenue growth clocks in at over 30% and shares trade at a forward price-to-earnings of 17.
Take a look at the chart below, and you’ll see that shares of Celgene had been stuck in a trading range of around $37 to $43 a share, before the stock was finally able to break out of that range and run all the way up to $48.77 a share. Once the stock got above the $48 level, it ran into some major resistance and quickly started to sell off. The stock now looks ready to drift lower, and investors should look for Celgene to find some support at around $46 to $43 a share. The $46 area will most likely not hold if the general market continues to sell off.
4. Aastrom Biosciences
The final stem cell stock that looks compelling is Aastrom Biosciences (ASTM). This company is a regenerative medicine firm engaged in the development of autologous cell products for the repair or regeneration of human tissue.
Looking at the chart below, you can see that Aastrom Biosciences continues to struggle whenever the stock gets above 40 cents to 50 cents a share. The stock spiked up on decent volume off of the GE-Geron deal, but shares quickly sold off and now look ready to retest the 50-day moving average of 38 cents a share. Investors might be better served to buy this stock if shares trade below the 50-day moving average and all the way down to 32 cents to 31 cents a share. At those levels, Aastrom has very strong previous support, and it might be worth buying some shares with a tight stop. In order for this stock to make a truly bullish run, shares of Aastrom will need to take out 50 cents and 80 cents before the stock can attempt to reach three-year highs of around $1.80 a share. If the stem cell sector continues to see positive news flow, there is no reason the stock can’t eventually trade up to that level, so buy shares on the cheap and continue to monitor the major stem cell developments.
Visit the Charts of the Week portfolio to learn about a few more stem cell stocks that look compelling.
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