Rayno BioBeat December 2020: Frothy Days Are Here Again-Momentum Traders Rule-Update 1

Update-1. 12/15…With Biden being declared a winner the focus of macro turns to stimulus talks and the FED Meeting tomorrow. The market ebullience returned today with all major indices up over 1%. The Pfizer vaccine is rolling out with Moderna expected next. With sellers holding off till 2021 the market is expected to rotate into lagging sectors. AAPL was up 5% and NASDAQ hit a record.

Coronavirus stocks were mixed with some vaccine plays selling on the news: MRNA down 5%, NVAX down 2.68%, PFE down 1.28%. COVID diagnostic stocks were mixed: ABT up 0.62%, GNMK up 2.48%, HOLX up 1.79%, OSUR down 2.62%, high flier QDEL down 2.93%.  The XBI was flat at $146.

Gene therapy has been the hot sector and today many ran up today: BMRN, EDIT, RGNX, MGTX, NTLA QURE. Mid- caps should be in focus as they have M&A potential : ALNY,  BHVN, NKTR, NBIX, RARE, SLDB, XNCR. The IBB was flat at 154. TGTX was up 17% on a proposed offering of common stock and an MS play.

Large caps were solid with nice winners: BMY up 4.34% on a GS buy, LLY up 6% on a buy-out of Prevail (PRVL),

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Frothy Days Are Here Again

Momentum Traders Rule

Are you a Trader or an Investor?

The Momentum traders are in control despite political dysfunction, surging COVID cases and global economic uncertainty. Coronavirus vaccines (Pfizer vaccine now being shipped). and low interest rates provide the fundamental underpinnings of bullish sentiment . You may be having a great year in the market but when you look at the crazy stocks moves weekly you may get distracted even with an overweight in biotech and healthcare. Now you see IPO stocks moves of 100%+ for Airbnb and DoorDash and you know it’s beyond your investment capabilities. Back to the basics, the biotech sector could get another boost with M&A a major driver of biopharma stocks. Late Friday after the market close AstraZeneca (AZN) announced it would buy Alexion (ALXN) for $39B. AZN is a major player in COVID vaccines and  with this deal will diversify into rare diseases with Alexion with revenues of $5.86B and expect to grow at 20%/year. ALXN stock price could double from the $120 level on the Monday opening. AstraZeneca (AZN) is down in pre-market trading.

Our strategy over the past two months has been to overweight healthcare and biotech with all the macro disruptions.We developed a model portfolio (see below) to track core positions. We have recently ventured beyond our core life science positions with trades that may stretch our risk profile. At the same time a portfolio manager needs to add so-called “re-opening” stocks in financials, industrials and leisure.This all makes 2021 more challenging for portfolio re-balancing.

Over the past week trading in biotech shares has been bullish despite lagging major indices. The small cap weighted XBI at $142 was up 3.62% and the broad based healthcare XLV at $111 was flattish down 0.97%. But gene therapy stocks were standouts: Crisper Therapeutics (CRSP) up  51% in one month, Editas Medicine (EDIT) up 123% even laggard Sangamo (SGMO) up 50% to $15+ Friday before settling at $12+. The stocks ran up with data presented at the  American Society of Hematology (ASH) Meeting. Some other gene therapy stocks near 52 week highs are: CLLS, FOLD, NTLA, RARE,SRPT, SLDB.

Volatility Remains High for Small Cap Stocks

Notable new highs or big movers last week just to show how frothy things are in biotech: ADPT,  ALKS, BCRX, BPMC, CCXI, IOVA, NSTG, NVTA, MYOV, NVCR,  TWST, etc. Moreover the IWM  hit a new high last week at $190 handle  and it includes many small cap biotech movers. The IWM was at $150 on November 1! 10% swings are common on a daily basis.

So you may be way ahead of the market compared to major ETFs and indices but with many stocks moving 25-50% in a week you may feel like you missed a trade or two. Clearly being a long term investor is the way to position your portfolio. Maybe you knew Alexion (ALXN) had  M&A deal potential as was rumored many times but the choppy technicals and weak fundamental performance left you with few clues until recently. Most sector funds and ETFs held ALXN because it was major players in rare disease.

In this market you can make money day trading but your stock picks for the long haul matter more.

Long ABBV AZN,EDIT, FBIOX, MRK, SGMO, UNH. XBI

Model Portfolio for Diversified Health Care