After moving lower the first 3 days this week, the market boomed Thursday on investor confidence in our robust economy. Then today the market went through the roof, breaking 9700 for the first time. This was due to very good non- inflationary news on unemployment edging up a trifle, and hourly wages going up a giant $.01 per hour.

With P.E.'s higher than ever, the red caution flag is still up. Markets like these are very tough to call, and your best bet is to take defensive action. That's very hard to do when stocks are going higher and neophytes are making big gains, while market veterans have only modest returns. Aggressiveness may be O.K. for market timers and day traders, who are often one and the same. So far there have been many ready buyers of the favored stocks at higher levels, and you can't argue with success.

In my view, I would hold my positions in good performers, even though their prices are reaching levels that scream caution. The market may be mad, but far be it for me to try to predict when the madness will end. I would definitely not take new positions in such stocks, as they are very dangerous. It's one thing to stay married to a woman who is acting somewhat erratic, and yet another thing to marry a woman like that.

There's always room in your portfolio to acquire a promising stock, and if you have no funds available for buying, then it's time to sell your poorest performer. It's price is not down by accident, and this is a good technique for constantly pruning your portfolio. To paraphrase Peter Lynch, you want to water your flowers and cut your weeds, not do the reverse.

I own a stock that I think offers quite an interesting value, it has been grossly overlooked by the street. In fact, last week it saw a new low for the 12 months, probably in response to a negative earnings report which is pretty much par for the course as this is a Biotech. But lets start at the beginning.

The stock is Protein Design Labs (PDLI). They are a leader in the development of humanized antibodies to prevent or treat various disease conditions. Their areas of expertise are in autoimmune, inflammatory, transplantation, cancer, and infectious disease. They hold patents in the U.S., Europe and Japan for their antibody humanization technology.

They have collaborative arrangements with eight pharmaceutical companies. And together they have four candidates in clinical trials. In November they granted a non-exclusive license to Genentech for antibodies to an antigen for the treatment of breast cancer. On March 4, 1999, PDL announced that their humanized antibody Zenapax was authorized for marketing in the 15 countries of the European Union for the prevention of acute organ rejection in patients receiving kidney transplants.

Zenapax is marketed by Hoffmann-La Roche, and they already market it in the U.S., Switzerland, Argentina, Guatemala, Lithuania, Mexico, New Zealand, the Philippines, Russia, South Korea, and Thailand.

On February 22, 1999 they announced results for the fourth quarter and the year ended December 31, 1998. Highlights are as follows:

With a 4th quarter cash burn rate of 21 million per year, they have almost 7 years' cash, which is quite rich for a Biotech. The stock has a 12 month price range of 15 7/16 - 43 3/4; the low was reached inter-day this past Monday. Today it closed at 16 1/16 up 3/32. With no debt, for every dollar of stock price, you get about $8 in cash and $8 in technology/business. Not a bad deal considering their prospects and the valuation of other Biotechs.

You will be well served by doing your homework, buying good business prospects, and avoiding inflated stock prices. Whatever you buy, it must be compatible with your risk tolerance; obviously mine is on the high side, given my penchant for Biotechs. If you are uneasy about buying anything at these high levels, there is nothing wrong with accumulating cash. We are only 264 points from the Dow Industrials reaching 10,000, and that could be a formidable psychological barrier. Stay tuned.

The Market Pro - March 5, 1999