The iShares Nasdaq Biotechnology ETF (NasdaqGS: IBB), which tracks the Nasdaq Biotechnology Index, and rival biotechnology exchange traded funds, seem to have put the woes experienced earlier this year behind them and recently have been in rally mode. That is prompting a spate of bullish calls on the once downtrodden group.
Rare are the occasions that biotechnology stocks and exchange traded funds are seen as offering value. In fact, the sector historically trades at multiples that are elevated relative to broader benchmarks, but in a year of struggles for biotechnology names, some analysts see value with some big-name biotech stocks.
SEE MORE: Resisting the Temptation of Biotech ETFs
IBB, which holds nearly 190 stocks and is a cap-weighted ETF, has a price-to-earnings ratio of just over 21 and a price-to-book ratio of 4.92. The ETF’s three-year standard deviation is just over 25 percent.
“US biotechnology stocks have markedly pulled back and now trade in line with US and European pharmaceutical companies on price-to-forward earnings and at a slight discount on price-to-operating cash flow. Macro trading patterns appear to be largely responsible, as biotech stocks are less idiosyncratic now than any time in history, and pharma appears to be a pretty macro trade as well, likely the result of a high investor focus on dividend yield compared to biotech,” according to a Morgan Stanley note posted by Ben Levisohn of Barron’s.
Investors who are closely watching the presidential race will want to keep an eye on Clinton in the coming months. If Clinton makes her way to the Oval Office and implements more regulation on pharmaceutical drug pricing, biotech companies may underperform the broader market.
IBB and rivals such as the SPDR S&P Biotech ETF (NYSEArca: XBI) and the First Trust NYSE Arca Biotechnology Index Fund (NYSEArca: FBT) are among the previously high-flying biotech ETFs that have been sapped by politicians, looking to earn voters favor in an election year, attacking high drug prices.
Related: Hit The Lab With These 17 Biotech ETFs
“Catalysts remain significant for the biotech industry: The biotech industry obviously remains open to swings given the political landscape. That said, fundamental catalysts for new drugs are also beginning to favor biotech again with PCSK9 outcomes studies, new drug launches from Regeneron (REGN), Amgen (AMGN) and Biogen (BIIB) possible in 2017 and key PhIII readouts for Celgene (CELG) and Incyte (INCY) in 2017,” adds Morgan Stanely in the note posted by Barron’s.
For more information on the biotech sector, visit our biotechnology category.
iShares Nasdaq Biotechnology ETF
