As is now widely documented, biotechnology stocks and exchange traded funds endured a rough 2021. Compounding those woes is the fact that investors were caught off guard by last year’s lethargy because biotechnology assets surged in 2020.
As a result, it’s not surprising that there’s no shortage of bullish commentary on the group for 2022, but it will take more than talk to boost the fortunes of ETFs such as the Invesco Nasdaq Biotechnology ETF (IBBQ).
Fortunately, IBBQ, which tracks the Nasdaq Biotechnology Index (NBI), has the ingredients with which to cook up a 2022 rebound recipe.
“Still, there are reasons to believe that things could get better. For starters, biotech stocks almost never have two bad years in a row,” reports Ben Levisohn for Barron’s. “The selloff has left more than 70 companies with more cash than their combined equity and debt, observes Baird analyst Brian Skorney, the most he has ever seen.”
IBBQ following the Nasdaq Biotechnology Index is relevant because that’s one of the widest gauges of biotech stocks. As a result, the Invesco ETF holds 373 stocks, providing investors with one of the deepest benches in this category.
While that expansive roster means that IBBQ has solid exposure to small-cap biotechnology stocks, the fund is also heavily allocated to large-cap names, as highlighted by an average market capitalization of $46.6 billion.
“Large-cap biotech will offer a smoother ride than small, and Vertex (VRTX), in particular, looks attractive,” according to Barron’s.
Vertex is IBBQ’s sixth-largest holding at a weight of 4.87%. As experienced biotechnology investors know, pipelines matter, and Vertex has a compelling one. That could spark some upside in the shares this year,
“In December, Vertex reported positive results from a Phase 2 trial of a treatment for a rare kidney disease, and it has ongoing trials for treatments for Type 1 diabetes and post-bunionectomy pain that could yield some positive surprises, argues RBC analyst Brian Abrahams,” notes Barron’s.
Amgen (NASDAQ:AMGN), a member of the Dow Jones Industrial Average and IBBQ’s largest holding at a weight of nearly 10%, is another member of the ETF’s roster to keep an eye on this year, and it’s already making some interesting moves.
Last week, the company announced a $1.9 billion biobucks deal with Generate Biomedicines “which includes $50 million upfront for the initial five program, with an option to collaborate on five more. Amgen will pay up to $370 million in milestones and also royalties for each resulting program from the pact, with a total potential transaction value of $1.9 billion in biobucks for Generate,” reports Annalee Armstrong for Fierce Biotech.
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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.