The pharmaceutical and biotechnology sub-sectors may benefit under a Republican president and Congress as the industries are less at risk of price controls that Democrats vowed to impose.
Market observers are growing more bullish on the sector as a Republican-led Congress and administration could enact reforms to free cash held overseas for tax reason by large U.S. pharmaceutical companies, which could pave the way for increased acquisitions in the sector. The White House is also looking to help the Food and Drug Administration (FDA) expedite new drug approvals, which could serve as a major catalyst for the biotechnology space.
“Pharmaceutical stocks are cheap. In fact, the PowerShares Dynamic Pharmaceuticals Portfolio (PJP), which comprises stocks of 30 US pharmaceutical companies, is trading at a discount to the S&P 500 Index and is the cheapest since 2009, when the post-financial crisis rally began,” adds PowerShares. “PJP is priced at just 12 times forward earnings per share — a sizeable discount to the S&P 500’s forward price-to-earnings ratio of 17.64 — while the price-to-expected sales ratio is at 2009 levels, which could pave the way for price appreciation potential.”
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