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Funds: Biotech is long term
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June 30, 2000: 4:52 p.m. ET
Managers at Morningstar examine the sector's outlook in post-genome age
By Staff Writer Jeanne Sahadi
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CHICAGO (CNNfn) - The completion of the first draft of the human genetic code is a milestone for science, but the payoff for investors is very likely a long way off, top money managers said this week.
Companies on the cutting edge of biotechnology may get a temporary boost in their stock price on the historic breakthrough, but the long-term outlook isn't as clear, said portfolio managers who sat down with CNNfn.com at the Morningstar Investment Conference in Chicago.
"You are still years away from having any commercial products that are going to do anything for anybody," said Howard Ward, manager of Gabelli Growth Fund. "It's a great milestone, but it's just the beginning."
It's not uncommon for a biotech stock to soar on news of a significant finding. But generally a new development represents the early, not the end stages of product development. In other words, the goods that can turn an actual profit are not clearly within sight.
That's partly why Amgen is as biotech as Ward is willing to get with his fund, and at this point he sees the stock as more of a traditional drug company.
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No argument from value manager Bill Nygren of Oakmark Funds. But he's not above profiting a little from all the excitement. For now, he likes Thermo Electron (TMO: Research, Estimates), whose stock is priced at a low teen multiple.
 One of Thermo's divisions is the leading manufacturer of equipment for protein analysis that will be used by scientists who look at the genome data. But it's a small division, so Thermo's valuation will not be hurt if the biotech bubble bursts but it will benefit from the sector's upside, Nygren said. Admittedly, he added, "We're (exposed to the sector) in a chicken way ... I would never pay the price for that division if it were a separate company."
International manager Mark Holowesko of Templeton Funds is steering clear of the sector for now, noting that there are close to 14,000 biotech firms and only "about 14 are making money."
Garrett Van Wagoner, known for his aggressive growth strategies at Van Wagoner Funds, is a little more bullish. The biotech companies may not turn a profit in the short term, he said, but the mapping of the human genome is "one of the most important events in history" and there may be opportunities for short-term gains in the stocks. Investors with a 12- to 24-month time horizon may benefit from the news in the sector.
-- A transcript of the complete CNNfn.com roundtable discussion will be posted in the days following the conference.
* Disclaimer 
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