Picky momentum investors

Over the past quarter or so, we've grown accustomed to stocks such as Agouron (AGPH) or Vivus (VVUS) losing or gaining $10 in five trading days. The activity of momentum investors, who are selectively re-entering the sector, may shed some light on the phenomenon

Nearly a year ago, momentum players provided the cornerstone for the biotech rally in the first half of 1996. In that market, momentum investors seemed to pick up any security with "biotech" or "pharmaceutical" in its name, with stocks in all tiers experiencing price appreciation.

This time around, the momentum players seem to be a bit more selective. "The momentum funds have come back in, but they are much more focused on late-stage companies that are commercialization stories, NDA stories or Phase III stories," according to Wayne Rothbaum, partner at The Carson Group. "We're not seeing the spill-over effect to early-stage companies. Momentum investors are definitely going with the Cephalons, Agourons, Centocors and Vivuses" of the sector.

What hasn't changed is the magnitude of the typical momentum fund investment. Because of their size, these funds have to take big positions in order to make money. For example, Rothbaum said, "Nicholas Applegate disclosed on Dec. 31 that it made a $60 million purchase of Agouron."

But they can divest just as quickly. "Understand that these portfolio managers are required to make money on an annual basis," said one manager of an "aggressive growth" portfolio. The manager, who wanted to remain nameless, also pointed out that the onus is on the company to understand the investment criteria of each fund manager in the company's investor pool

"Companies have no reason

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