Update-3…June 25-Re-opening Paused in FLA and TX-but stocks rally anyway. NASDAQ leads up 11% YTD. Trading remains volatile e.g. VIR. Bullish trend intact for biotech IBB up 1.11%.
- Vaccine stocks continue strong: BNTX INO NVAX ; MRNA lagging.
- Diagnostic leaders today: GNMK up 10.28%, QDEL up 3.68%.
- XBI up 2.48% close to highs YTD of $115.77.
- Recent trades: Positive-AXDX, HOLX, MYOV VIR; Negative- VCYT.
Two year chart-weekly:
Update-2…June 24 12:15p EDT– Risk Off on resurgence of COVID virus as cases in US grow; vaccine stocks strong. NASDAQ down 2.25% to 9900 level.
- Red screen day except INO up 11%, NVAX up 9%; VIR up 6.37%, XBI down 3%
- High flier QDEL down 4.36% to $198 level.
- Gene therapy stocks down as momentum eases: EDIT down 7%,QURE down 7.5%.
- IBB down 1.9% to $136, GILD holds $75 handle.
Update-1…June 23. Momentum ebbs a bit…IBB up 0.38% to $138.65, XBI up 1.49% to $113.70. Both at 5 yr highs.
- Recent trades: AXDX down 0.92%, CRSP up 4.65%, MYOV up 14.3%, XNCR up 0.82%, VIR up 3,60%. Bought today VCYT at $27.
- Coronavirus movers up: CODX, INO up 41% to $21.57, NVAX, VIR
- Mid Cap movers up: AGIO ANAB ASND.
- Big winner on merger in Precision Oncology: Invitae (NVTA) up 10.57% to $29,91.
Biotech Breakout: XBI Hits All Time High
Coronavirus stocks-Volatility and speculation remains very high
A News Driven Momentum Market
As we have been writing since March 23 lows on the S&P the biotech sector is well positioned to do well during the pandemic because drugs and diagnostics offer potential solutions to infectious diseases. Moreover there is a resurgence of interest in vaccines now thought to be the only long term economical solution to coronaviruses. Vaccines require considerable investment and are fraught with risk because of the huge number of doses, the novel aspect of coronaviruses, and difficult timelines. This is unlike the situation with Influenza viruses where companies have a lot of experience. The diagnostic industry has long dealt with molecular based tests for viral infections from simple ten minute tests for Flu to the more complex epidemic of AIDS -HIV in the 80s.
Our two top picks since January 2018 have been Genmark Diagnostics (GNMK) up 107% and Teledoc (TDOC) up 227% over 1 year both benefiting from the pandemic.
The XBI hit the 112 level a new all time high exceeding levels last touched on July 13 2015. The XBI is an equal weighted ETF and rebalanced frequently and the current top five holdings are: MRNA, REGN, IMMU, EXEL and SGEN. Regeneron (REGN) is up 67% over 6 months and was one of the worst stocks of 2019.
Portfolio Composition and Strategy
Level One- Stay with ETFs and Funds Prominent in the Sector
- XBI for aggressive investors balanced with the IBB.
- XLV for broad healthcare coverage.
- Two major funds can provide diversification: Fidelity Select Biotechnology (FBIOX) and T.Rowe Price Health Science ( PRHSX). Funds should be held in tax deferred accounts.
Level Two – Individual stocks targeted to diseases and themes. Dividend stocks.
- Mid-caps likely to be involved in M&A or have strong revenue growth.
- Large Caps that provide top line growth and dividends ABBV BMY GILD GSK RHBBY.
- Diagnostics and Tools: DHR GNMK RHHBY TMO; Q2 earnings will show growth leaders.
Level Three-Higher reward, higher risk but innovation leaders.
- Gene Therapy- CRSP, EDIT, NTLA.
- Sequencing – ILMN PACB
- Vaccines-INO MRNA NVAX and several large companies like GSK JNJ PFE.
Small caps have reached the speculative phase of the market. It is seemingly very easy to buy a microcap or momentum driven stock and make a quick 20-30% but with extreme volatility.
The market is quite frothy at this point after a big 3 month run. Momentum traders rule. We have added the following stocks as trades over the past 3 weeks: AXDX CRSP MYOV VIR XNCR. Look at two stocks we previously owned that look poised for a rebound: AMRN and VCYT.