One of the reasons that we created researchLAB was to identify
and track companies like the makers of
: Arena Pharmaceuticals (ARNA), Orexigen Therapeutics (OREX), and
Yes, they fit into broader categories such as "drug makers" and
"biotechs," but the story runs deeper for these companies because
they're closely linked to a specific social trend that is sadly
growing. Just yesterday, a
that more than half the U.S. population will be obese by 2030,
marking a sharp increase from the already troubling levels.
The Food and Drug Administration refused to approve new obesity
drugs for more than a decade, causing ARNA, VVUS, and OREX to
languish. But they relented earlier this year, causing those stocks
to double, triple, quadruple, and more. There was an initial spike
in the spring and early summer, followed by some nice pullbacks.
Now it's time to think about getting back on the train.
Just realize what you're doing and don't try too hard to understand
the companies or their drugs. Analysts will model their sales and
growth rates, which is all well and good, but it won't necessarily
help you make money. Their valuations now are extremely high while
meaning little. All that matters is that they're going up.
While that might sound cavalier, in my view it makes a lot of
sense. The big story is that these companies have a bright future
because obesity is a rising problem. Owning these stocks will let
you ride that trend, so try not to over-think it.
Reading too many analyst reports and knowing too much about the
companies can blind you to truth. (See
for more.) Think about it like this: You don't need to understand
the mechanics of an internal combustion engine to drive a car. You
need to get on the road going in the right direction, and if it
suddenly hits traffic or is the wrong route, you take another one.
End of story.
Imagine that you know too much about the car you're driving. You're
obsessed with its great engine and design but fail to notice the
traffic jam--or, even worse, the collapsed bridge ahead.
It's a great car, you keep repeating to yourself, oblivious to the
bigger picture. This happens again and again in trading, where
investors fall in love with stocks and cannot see the truth.
One way to avoid this is not to know too much. Just have a general
idea of what's going on and pay much more attention to the price
makes this easy because it's the only service out there that
organizes companies thematically around products such as obesity
drugs. It lets you easily discover and
track such groups
Everything on the charts of ARNA, OREX, and VVUS indicate the road
is wide open ahead. They've rallied and pulled back. Their stories
are intact. Now is the time to think about jumping on board.
(A version of this article appeared in optionMONSTER's
What's the Trade?
newsletter of Sept. 19.)