Another Way to Play Genzyme (GENZ)

Biotech company Genzyme (NASDAQ:GENZ) was the subject of takeover rumors. CNBC’s David Faber broke the story on a possible hostile takeover bid from Sanofi-Aventis (SNY-NYSE). Shares of Genzyme rallied sharply and are up roughly 17% at the time of this entry.

As many of you know, the vast majority of takeover rumors don’t happen. However these rumors offer both traders and investors the opportunity to make fast, short term profits on both the long and short side. Sometimes the best way to play hot stocks like GENZ is through an ETF. For instance,there is a biotech ETF run by Merril Lynch (AMEX:BBH). Shares of BBH represent ownership in several different biotech companies, including GENZ. Genzyme accounts for roughly 7% of BBH’s holdings.

When a stock like GENZ gets hot, volatility increases too. While shares of takeover stocks often offer more liquidity than penny stocks, they are just as risky. If an investor is right, he can attain returns that are only usually seen in hot IPO’s or hot penny stocks. If wrong, 20-30% intraday pullbacks happen frequently. In other words, the wishy-washy trader is usually shaken out.

This is why ETF’s are attractive, and keep in mind this doesn’t only apply to BBH. Buying shares of an ETF in lieu of buying a takeover stock offers less upside, but it also offers a less risky way to trade. The rationale is very simple. Many investors are afraid to jump is a stock that has moved up in a short period of time. Even if they think the equity will continue to move higher. So many times, the investor just passes on the idea and kicks them self later for being on the sideline. Now, by buying the ETF that contains the same equity, they still get to participate. Not fully, but they are represented. This strategy isn’t for everyone, but it decreases risk and small gains add up. So get familiar with a few different ETF’S and their symbols. Remember, when stocks that are in an ETF moves, the ETF sometimes lags behind. The rules of supply and demand still apply, but you have to be quick and prepared. SO add in addition to your large cap and penny stock lists, throw a few ETF’s on your stocks watchlist too.