The iShares Nasdaq Biotechnology ETF (NASDAQGM: IBB), the largest biotech exchange traded fund by assets, and other biotechnology assets have recently been slumping, but some analysts believe big biotechnology stocks can rebound.
IBB tracks the Nasdaq Biotechnology Index and holds nearly 160 stocks. Biogen Inc. (NASDAQ: BIIB), Amgen Inc, (NASDAQ: AMGN), Gilead Sciences Corp. (NASDAQ: GILD) and Celegene Inc. (NASDAQ: CELG) combine for a significant percentage of the fund’s weight. Those are four of the largest biotechnology companies in the U.S.
“The first quarter is traditionally not a strong one for biotech earnings for a host of reasons—including fewer shipping days, inventory reductions after year-end price increases, weather disruptions, and annual copay resets in many health insurance plans,” reports Teresa Rivas for Barron’s. “While those factors are still in play, favorable foreign-exchange rates and low expectations may make this year an exception.”
Forecasting A Biotech Rebound
Helping the sector’s prospects is a speedier approval process by the U.S. Food and Drug Administration. In 2012, the FDA was given the authority to designate certain drugs as a ‘breakthrough therapy,’ which then allowed that drug to move through the approval processes more quickly,” said Morningstar.
There are supporters of the biotech space. Healthcare stocks are also showing attractive valuations relative to other defensive sectors, which are richly valued. 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.
Related: Catalysts Abound for Biotech ETFs
Leerink’s Geoffrey Porges “writes that he expects most of the companies in his large-cap biotech coverage will ‘report surprisingly strong first-quarter results, with most reporting significant beats compared to consensus,’ thanks to currency, pricing, inventories, and underlying demand for products,” according to Barron’s.
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.
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.
For more information on the biotech sector, visit our biotechnology category.