I asked a close friend of mine today what sector of the market was his favorite.  He said, "I like anything related to biotechnology."  So I focused on that sector today.

I realized after the first 75 or so stocks I looked at that the rules I've been using to select good stocks don't exactly work in the biotech sector.  According to the criteria I typically use, very few companies in the drug industry appear strong.

For today's pick, I'm using a little different approach.  This stock carries more risk but also more potential reward than most of the stocks I've chosen in the past.  Today's stock is Ligand Pharmaceuticals (LGND).  The 52-week low is $4.02 and the high is $13.03, while the current price per share is $4.30.  From this we can see there is the possibility for the stock's value to multiply.  Next we look at the earnings per share and the P/E ratio.  This stock is earning $4.55 per share, which is more than the current price of the stock.

This illustrates an important property of stocks, namely that there are two components to any stock's price.  First, there is the physical component, meaning the actual products, services, and income of the company.  Second, there is the speculative component, which is based on how people view the company.  The speculative component sits on top of the physical, and the actual income of the company is not greatly affected by speculative price fluctuations.  In the case of Ligand, this means the stock is currently undervalued.  The speculative component is currently very small in comparison to the physical component, so it is very likely that the price of this stock will increase.

Next, we look at the market capitalization for this company.  This is considered a small cap, with only $410.36 million in total market share.  Small caps with strong fundamentals tend to be good investments.  On top of that, the gross margin is 88.60%.

With all the numbers looking good, we turn next to the qualitative analysis.  Ligand has a strong-looking pipeline, and they have connections with several other drug companies including Pfizer.  They are strong in research as well, having put out several publications, and they have well-established scientists working with them.

All in all, I didn't see anything bad about Ligand at all and I saw a lot of good.