To start 2022, biotechnology stocks aren’t convincing investors that the group is ready to snap out of a funk that extends back to last year.
Investors looking for good news among biotechnology equities can lean on valuation, and while valuation alone isn’t a reason to buy or sell a stock, some depressed multiples in the biotech arena are notable because the industry is usually richly valued.
Interestingly, some of the compelling values currently available among biotech stocks can be found on the smaller side of the group, which could ultimately benefit exchange traded funds like the ALPS Medical Breakthroughs ETF (SBIO).
“Investor sentiment on the biotech sector has been so grim in recent months that a number of biotechs have market values that are less than the cash on their balance sheets. That has been the case for a while: In December, a Barron’s stock screen highlighted eight biotechs that were trading below cash,” reports Josh Nathan-Kazis for Barron’s.
Alone, stocks trading below cash — regardless of industry — is an alluring trait. It’s even more meaningful with SBIO because the fund’s underlying index requires that member firms have at least two years’ worth of cash to stay afloat at current burn rates.
Smaller biotech stocks are usually volatile. That’s simply the price of admission for accessing what can turn into incredible growth stories. Fortunately with SBIO, investors can avoid some of that volatility due to the aforementioned cash requirement and the index’s mandate that member firms have at least one drug in Phase II or Phase III clinical trials.
Of course, it’s great to find stocks trading below cash, and several reside in SBIO.
“When stocks trade at or below the value of their cash holdings, it means that investors are ascribing zero value to their drug pipelines or their technology. An investor who buys the stock is getting that value for nothing,” according to Barron’s.
Of the group of eight biotechnology stocks trading below cash, three reside on the SBIO roster. Those are Allakos Inc. (NASDAQ:ALLK), Annexon Inc. (NASDAQ:ANNX), and BioAtla Inc. (NASDAQ:BCAB).
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.