The iShares Nasdaq Biotechnology ETF (NasdaqGM: IBB), the largest biotechnology exchange traded fund by assets, is up nearly 13% year-to-date, indicating biotechnology is playing a pivotal role in the broader healthcare sector’s resurgence.
Biotechnology historically trades at multiples that are elevated relative to broader benchmarks, but after last year’s of struggles for biotechnology names, some analysts see value with some big-name biotech stocks.
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.
Market observers are growing more bullish on the sector as a Republican-led Congress and administration could enact reforms to free cash held overseas for tax reason by large U.S. pharmaceutical companies, which could pave the way for increased acquisitions in the sector. The White House is also looking to help the Food and Drug Administration (FDA) expedite new drug approvals, which could serve as a major catalyst for the biotechnology space.
Rich Ross of Evercore ISI said regarding IBB “an ascending triangle that has formed on the chart. “This tends to be a bullish continuation pattern to the upside,” he said. This type of pattern often emerges when a stock in an uptrend consolidates, the idea is that there could be a breakout above previous resistance,” reports CNBC.
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.
“The second pattern Ross noted was a “textbook” cup and handle within that ascending triangle. This type of pattern forms during a period of consolidation against a broader backdrop of a strong base of support,” according to CNBC.
For more information on the biotech sector, visit our biotechnology category.