The iShares Nasdaq Biotechnology ETF (NasdaqGM: IBB), the largest biotechnology exchange traded fund by assets, is a higher by nearly 12% this year, a sign that biotechnology stocks are on the mend after being one of last year’s most noticeable laggards.
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.
Now, some market observers are increasingly bullish on biotech. On Tuesday, Credit Suisse upgraded its rating on the healthcare sector, the third-largest sector weight in the S&P 500, to overweight from marketweight.
“In large cap, net buy ratings, mutual fund overweights, and hedge fund net exposure have all been slipping from the high end of their historical range. In small cap, our sell-side indicator is also elevated, while our mutual fund indicator is moving up, and our hedge fund indicator is falling toward past lows. Importantly, sell-side ratings have shown a significant correlation with relative performance in both small and large cap,” according to a Credit Suisse note posted by Crystal Kim of Barron’s.
That upgrade came against the backdrop of more harsh rhetoric aimed at the pharmaceuticals industry from President Donald Trump.
On Monday, President Trump vowed “Medicine prices will be coming way down — way, way, way down — and that’s going to happen fast.”
Trump added that pharmaceuticals prices in the U.S. are “outrageous.” Earlier this year, Trump said the pharmaceuticals companies “are getting away with murder” when it comes to pricing on their products.
“However, biotechnology ETFs might be the better bet. Credit Suisse says that its healthcare industry scorecard suggests that biotech and life sciences stocks are ‘the source of the broader industry group’s valuation appeal,’” reports Barron’s.
ETF traders who are betting big on the biotechnology sector rebound have also utilized leveraged long options including the Direxion Daily S&P Biotech Bull Shares (NYSEArca: LABU), which takes the 3x or 300% daily performance of the S&P Biotechnology Select Industry Index.
Other options include the ProShares UltraPro Nasdaq Biotechnology (NasdaqGM: UBIO), which takes the 3x daily performance of the Nasdaq Biotechnology Index, and the ProShares Ultra Nasdaq Biotechnology (NasdaqGM: BIB), which takes the 2x performance of the same benchmark.
For more information on the biotech sector, visit our biotechnology category.