Stem Cell Stocks Set To Become Next Major Bubble...

As you can see, the blog has been dormant over the past several months as the market has taken out and shot every single sector (along with hedge funds, i-banks, and overpayed CEOs) across the board. There has literally been nothing to play for more than a day or two, and no real ideas to present as the short term nature of trades has forced us all into daytrader mentality. But alas after a long 3 months of scalping in and out of stocks a sector has presented itself with the potential for a massive long term move: stem cells. This technology is obviously highly controversial and many probably don't believe in it all together, but I urge you to put all that aside. Whether or not you believe in it is irrelevant, as the move in the stocks will happen regardless. We're just taking the opportunity to buy an asset now, in the belief that in the future people will be willing to pay much higher prices for it.

OK so lets get straight to the trade. At this point in the game we believe we are in inning 1 of a multiyear bull market which will develop into a bubble for stem cell stocks. We are at the point where stem cell stocks are severely underowned by wall street which means that there is still massive buying to come not only from wall street but from the general public. GERN, the most advanced of the publicly traded stem cell companies, has a mere 26% of the float owned by institutions, STEM viewed as the #2 player, a mere 7%. Now the way this will play out is that GERN will lead the pack higher in terms of market caps. GERNs market cap was roughly $400M as of the close today and STEMs around $175M....a roughly 2.5:1 ratio between the two. Now as GERNs market cap appreciates, STEMs will appreciate by a relative amount. So when GERN reaches the $1B market cap level, we should see STEM at roughly $400M...at the $2B level, STEM at $800M. We're using these ratios because this is how the market has valued them prior to any hype based on the value of their potential and technology alone. Now as the sector heats up, we will absolutely see significant moves in the small cap stem cell stocks. Watch stocks like ASTM, ATHX, and a tiny company ACTC.pk. We rarely if ever play over the counter stocks, but this pink sheet ACTC has grabbed our attention as back in April of 2008, the FDA invited only 3 companies to testify about ways to safely test embryonic stem cell products in patients and ACTC was one of them. Alongside them were two heavy hitters, GERN and Novocell (which is not publicly traded). In addition to being respected by the FDA, they have published in several major biomedical publications that they have the only technology that can produce stem cell lines of all types without the destruction of the embryo. This is sure to attract major attention as stem cell momentum picks up. The company currently has a mere $10M market cap, and we believe this has the potential to reach $250M...yes 25 X its current value. So the way we are playing this potential bull market is by using GERN as our proxy, and taking a position in STEM as our core stem cell stock, and a speculative position in ACTC.pk as our potential small cap multibagger. We are early enough in this bull market where market leaders are still cheap enough to buy in large quantities so we should take the opportunity to build large positions in these names. As the momentum builds however, we will surely swing trade the other small caps.

Good luck, and remember this post at the end of 2009.