Update-1 A bit of a sell-off on end of week option expirations and cancellation of China visit to farm Bureau in MT. NAZ down 0.8%, S&P down 0.5%. Less reaction to China news now?
Can biotech rally as contrian play to tech and industrials? tape in biotech was better than overall market.
- Our large cap biotech holdings did well today some outperforming IBB:up 0.88%; ABBV up 0.99%, BMY up 0.98%, ILMN up 1.43%, MRK up 1.43%.
- Gene therapy stocks mixed but CRSP up 1.73%.
- Mid Caps mixed: ACAD down 2.26%, GWPH down 4.44%, SRPT down 3.345,ALNY up 2.25%, INCY up 3.96%, XNCR up 4.03%.
- My small-cap plays: AXGT up 3.19%, CFMS up 3.1%, GNMK up 2.83%.
Biotech Wrap -Up in a Sideways Market: Four Week Period Through September 18 Shows a Bottoming process for 2019.
Benign reaction to FED today with 0.25% rate cut. Biotechs are mixed but ALXN down over 4% to $103.
Biotech Sector Is Lagging All Major Indices (Except Energy) :S&P up 19%, Semis up 16%, Gold/Silver up 31% etc.
I have been traveling and on vacation since the end of August making very few biotech trades still holding onto core positions. My expectation is that we will get some rotation back into biotech stocks because there is top line revenue growth in life science tools and biopharma sectors and many large cap stocks have value/growth characteristics because of dividends and steady earnings.
Our core large cap positions are : Abbvie (ABBV), Bristol Myers (BMY), Gilead Sciences (GILD), Merck (MRK) and Roche ADR (RHHBY). Celgene has been merged with BMY. All pay dividends.See our last review of large caps in August. We are rebalancing these positions on guidance updates.MRK and RHHBY are our best performers in 2019.
Biotech in a Sideways Market Struggling To Get Back to April Highs
We have yet to recover from an April downturn in what has been a choppy market at best with some stabilization at January and August bottoms. The trend since Labor Day is slightly up.My expectation is to have a modest Q4 rally that would give us a 5-7 % move by year-end, not a great year but not a bear market. Assume that the April highs are in for the year but you need some diversification with healthcare stocks in an equity portfolio.
Biotech and Healthcare Stocks Are Lagging in 2019
As we have reported many times in the past the market has been buffeted by macro news such as te trade war with CHINA, the FED policy and industry drug pricing. Assuming interest rates remain low and no new government legislation affecting drug prices you may still want want healthcare stocks in your portfolio. However you should expect healthcare to lag technology, semiconductors, and even the S&P 500 in 2019 so stock picking is critical. The Healthcare Select SPDR FUND (XLV) is flat over the past month and up 9.56% YTD trailing the S&P and most technology sub-sectors. For sure biotech stocks will need help from the usual drivers: M&A, positive Q4 revenue growth and clinical news breakthroughs..
- The NASDAQ-100 (QQQ) consistently outperforms biotech up over 4 weeks and 28% YTD.
- The S&P 500 up % YTD outperformed biotech.
- The IBB was down 0.74% today at $104 handle and up 6.96% YTD. The XBI was down 0.9% to $82 handle up 16% YTD.
- Mid-Cap Biopharmas are usually leaders in a bull market but many are lagging. These stocks are above their mid-points or near their 52 weeks: ACAD, ALNY, ARNA, BPMC, CRSP, INCY, MRTX, NBIX, NVCR, RGEN, SGEN. Here is 2018 performance data from some of the mid-caps we follow.There have been more than four major acquisitions among the mid cap stocks: ARRY, FMI, LOXO, TSRO and recently Alder BioPharmaceuticals (ALDR).
- NB that Medtech (IHI) is doing very well up 32% YTD, easily the strongest sub-sector of healthcare.
Here are some of the top performing Life Science Tools and Diagnostics stocks over 52 weeks:
A DHR QDEL TMO VCYT
We will update the stocks we tracked at the AACC later this month.We currently own GNMK ILMN
Here are some trades we have made over the past month:
Axovant Gene Therapies (AXGT) is a microcap UK based Company focused on neurological and neuromuscular diseases with 3 products in the clinic. The stock is up over 15% in one month now at the $7.88 level. The Company has over $100M in cash. But most of my speculative microcap trades that did well in Q! are seriously lagging so be cautious.
We bought a little XBI around $82 to position our portfolio for a Q4 rally. If the XBI drops below $79 we would be a seller.
We traded out of CRISPR Therapeutics but want to get back in again in the mid-40s.
Expectations for Q4 are for a 4-6% rally but this would require the NASDAQ to hold current levels or go up as the correlation with the two markets is high.
Trading in small and mid-cap stocks should still be good because there are many excellent companies,Equity funding is available and trading volume is good.