Expectations are in place for a brisk pace of consolidation in the biotechnology space this year, and that could benefit an assortment of exchange traded funds, such as the ALPS Medical Breakthroughs ETF (SBIO).
Like other ETFs addressing smaller biotech stocks, SBIO is coming off a trying 2021, but if mergers and acquisitions activity in the healthcare sector roars back to life this year, the ALPS fund could be a potential beneficiary.
Fortunately, there’s something for SBIO to build upon as 2022 unfolds because some analysts are bullish on biotech stocks across the various market capitalization segments.
“We see a macro set-up that skews largely positive across the market cap spectrum for the sector,” said Raymond James analysts in a recent note to clients.
Some of last year’s headwinds are abating, and that’s pertinent to SBIO investors because the ETF’s components could use some good news on the approval and regulatory fronts. Given the size of SBIO member firms (they’re capped at $5 billion in market value upon inclusion) and the trial requirement enforced by the fund’s index (components must have at least one treatment in Phase II or III trials), it’s pivotal that FDA approvals move efficiently and regulators don’t stand in the way of takeovers.
“Some of the big worries that have scared investors off, including political efforts at overhauling drug pricing and questions about the regulatory approach of the Biden-era Food and Drug Administration, seem to be diminishing,” reports Josh Nathan-Kazis for Barron’s.
As for mergers and acquisitions — a catalyst that’s often lifted SBIO over its more than seven years on the market — Raymond James says that the pieces of that puzzle are coming together, indicating that investors could get the biotech consolidation activity they’ve been longing for. Plus, there might be rare value to be had with smaller stocks in the group.
“With large caps trading at 12.4X 2022 consensus EPS, we see meaningful value in front of what we had postulated in November could be a 2022 generalist rotation back into biopharma,” notes Raymond James. “For smid-caps, we also see value opportunity.”
The $188.43 million SBIO follows the S-Network Medical Breakthroughs Index.
Other biotech ETFs to consider include the VanEck Vectors Biotech ETF (BBH), the iShares Biotechnology ETF (IBB), and the Virtus LifeSci Biotech Clinical Trials ETF (BBC).
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The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
