Healthcare and Biotechnology stocks are underperforming the S&P YTD-Medical Devices and Equipment are a bright spot up over 4% YTD.
The Q4 2010 momentum in biotech stocks has ebbed in 2011 as the broad market rally continues. The S&P is up 5% YTD while the bellwether biotech ETFs IBB ($94.30), FBT($38.71) and XBI ($62.96) are up or down within 1%. The healthcare sector overall is down 2.9% despite the medical equipment and supplies sector being up over 4%. The latter group was boosted by additional premium in the buyout of Beckman(BEC $82.50) up 9.75% by Danaher Industries(DHR $49), an industrial and medical conglomerate with revenues in excess of $12B. With Beckman revenues in the $3.6B range Danaher is betting on growth in the medical sector paying a 1.9x Price to Sales with 2011 sales growth estimates of 3.9%, but projected earnings growth flat. Danaher stock is up 38% over 12 months showing that their conglomerate model is working.
Beckman Coulter Valuation at 8.6 Ebitda Leaves LBO Crowd Frigid: Real M&A – Bloomberg
The Rayno Life Science Tools and Diagnostics Portfolio has outperformed the Rayno Biopharmaceuticals Portfolio in 2011 with many stocks up YTD:
- Alere (ALR $39.89) up 9%
- GenProbe (GPRO $64.10) up 5.78%
- Illumina(ILMN $71.15) up 12.3%
- Immucor (BLUD $20.38) up 2.77%
- Microfluidics (MFLU $1.33) up 73% with buyout
Despite concerns about potential cutbacks in the NIH budget there is still good growth potential in sequencing and selective areas of molecular diagnostics. The Beckman deal at a premium illustrates the value from an M&A perspective.
We reiterate our portfolio strategy for early 2011:
- raise a little cash by taking profits in ETF’s and small cap speculative biotechs,
- no new buys until after earnings period in mid to late Feb,
- caution on laggards in the portfolio Celera(CRA), Micromet(MITI),Nektar (NKTR) and Sequenom (SQNM),
- Tools and diagnostics still look attractive,
- The “MO” season is over for now.