The iShares Nasdaq Biotechnology ETF (NASDAQGM: IBB), the largest biotech ETF by assets, and its equal-weight rival, the SPDR S&P Biotech ETF (NYSEArca: XBI), are up 29% and 49%, respectively, year-to-date. Some market observers believe already hot biotech stocks can continue surging.
“Erin Gibbs, a portfolio manager with S&P Global, points out that ‘the average stock in the XBI is trading at 21 percent below its [average]analyst target price. The average stock is rated a buy,’” reports CNBC.
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.
“Of course, valuations are low for a reason. Gibbs also pointed out that ‘biotech is expected to have earnings contract -3.3 percent in 2017 and then recover to 6.6 percent [earnings per share]growth in 2018,’” according to CNBC.