The healthcare sector has been hot for most of this year and biotechnology stocks are a big reason why, but the iShares Nasdaq Biotechnology ETF (NASDAQGM: IBB), the largest biotech ETF by assets, is off by 5% over the past month.
“The top 3 IBB holdings are Biogen (NASDAQ: BIIB), Amgen, Inc.(NASDAQ: AMGN) and Gilead Sciences, Inc.(NASDAQ: GILD),” according to a Seeking Alpha analysis of IBB. “Biogen actually announced on the 24th of this month and although the company reported an earnings and revenue beat for its third quarter, shares actually sold off due to hesitancy over growth rates of Spinraza in the US. Amgen announces today and Gilead tomorrow so it will be interesting to see if growth rates of their blockbuster drugs can be maintained. If they can’t, the market will most likely punish the shares irrespective of whether both companies report earnings beats or not.”
The $9.8 billion IBB is a cap-weighted ETF, so the largest biotechnology stocks take on the largest weights in the fund. The aforementioned trio of biotechnology giants combine for almost a quarter of IBB’s weight. IBB’s top 10 holdings combine for over 57% of the fund’s weight.
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: Hot Biotech Stocks, ETFs Can Keep Surging
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.
“Interestingly enough with biotech, the complex has already dropped to the 38% retracement level and the 50% level is at the 322 level. I think either of these levels would be a good target for the eventual bottom to occur. In fact, we have an array of companies in this sector announcing their earnings over the coming week,” according to Seeking Alpha.
For more information on the biotech sector, visit our biotechnology category.