Update-3 10/6…Apparently a Momentum Market needs constant feeding. Politics are in the forefront. And the COIVID pandemic lingers. Small caps did better IWM down only 0.25%, IJR flat. Large cap biotech was not a place to hide either. Coronavirus winners today : BNTX, CVAC, GNMK, INO, OSUR, VIR. Our picks did well.
Update-2 10/5… 10:30A. Momentum is back!
Coronavirus stocks are running. Antiviral drug stocks are strong:GILD REGN VIR
New Long Trades: AXDX up 1.3%, OSUR up 11%, PACB up 6%, VIR up 9%.
XBI up 3.34% to $114+
Vaccine pure plays are up: BNTX MRNA NVAX
Update-1 October 3 COVID Invades the White House with many key staffers infected.
Focus stocks: OSUR PACB QDEL
In a shocking but not unexpected development Trump and Melania as well as Hope Hicks, Kellyanne Conway and other key staffers tested positive. Widespread media reports attributed the infection to WH parties without masks and social distancing. But despite Trump’s illness and hospitalization, market indices performed well with Financials up 3.56% and consumer goods and services showing 2%+ gains. The healthcare sector eked out 1.1% gains for the week while energy continued to lag down 2.67%. Here are more details on biotech and coronavirus stocks.
- Biotech ETFS: the XBI struggled to make gains ending up at the $110 level. The IBB chopped up a bit before selling down to the $133 level down over 3% for 3 mos.
- We recommend that investors focus on diagnostics stocks and the have had a strong 4 weeks with pure play Dx stocks moving up: GNMK HOLX QDEL We recently picked Orasure (OSUR) up 6.5% this week as a potential winner should they launch a rapid saliva test for coronavirus.
- Another recent life science pick Pacific Biosciences (PACB) was up 125% to $11.71 for the week, The Company was going o be acquired by Illumina but regulators opposed the deal.
- Our large cap diversified device/biopharma picks are: ABT,JNJ and RHHBY.
- Pure-play vaccine stocks were mixed with milestones pushed out: BNTX INO MRNA NVAX.
- The QQQ is up 29% YTD outperforming biotech by more than 20 percentage points!
Biotech Stock Playbook in a Momentum Market
Bull market in biotech intact with considerable volatility.
“Pure-play” vaccine stocks are hard to trade.
Make sure your portfolio has diagnostic stocks.
Since mid-July we have called for caution when adding new positions to your portfolio. Biotech stocks peaked in mid-July but we have assumed a fourth quarter rally driven by clinical news in oncology and important scientific breakthroughs in diagnostic testing for coronavirus and COVID vaccine data. M&A is expected to be a driver as well.Since the beginning of the pandemic in early March the underlying bull case for biotech stocks has been that they can provide solutions with diagnostic tests, vaccines and drugs. The coronavirus trade is not easy because while most of the key players and products are well known there is still a lot to be learned about clinical data and market trends.
Trading is favored in a momentum market because of political crosscurrents and need for government stimulus to fight the pandemic. Moreover COVID data changes weekly and is subjects to regional case outbreaks.
Here is a brief outline of how we view our life science portfolio:
- Core large cap biopharma for dividends and growth. Our top picks are Abbvie (ABBV), Bristol-Myers (BMY), Merck (MRK), and Roche ADR (RHHBY). Add Astra Zeneca (AZN) and GlaxoSmithKline (GSK) fo more vaccine weighting. Add JNJ for vaccine and general healthcare weighting.
- We believe diagnostic stocks are a lower risk for a portfolio than vaccine stocks because they are more important for coronavirus control and getting the economy rolling again. Diagnostic platforms are well defined with performance parameters.Large cap leaders are Abbott (ABT) and Roche (RHHBY) and with Q3 results several other mid-caps will show good results: DHR, TMO- both compares we have covered in the past. Quidel (QDEL) should do well but it is a momentum stock that has to be played accordingly..Our best pick Genmark Diagnostics (GNMK) returned 300% and we have taken some profits. We also like Hologic (HOLX) as a core infectious disease play.We mentioned Accelerate Diagnostics (AXDX) as a good trade and it soared 50% over several months but has since come down to the $11 handle.Our new pick is Orasure (OSUR) which could deliver a breakthrough rapid test for COVID using saliva.
3. We can pick new trades in biopharma based on the momentum of the XBI. We traded out on recent weakness at the $115 level and expect to jump back in for post election gains.However at the present time we are neutral on the XBI.
4. Breakthrogh technologies and innovation. The main driver of biotech stocks is innovation such as precision medicine in immuno-oncology whereby targeted antibodies create new medicines. Two leading companies in this area are Bristol-Myers and Merck with Opdivo and Keytruda. Gene therapy is another potential breakthrough treatment and we have provided updates on Editas Medicine (EDIT) and CRISPR Therapeutics (CRSP) but currently have no positions.Our latest trade in sequencing is Pacific Biosciences (PACB), a trade and a long term hold.
5. Vaccines are a difficult sector to trade which is why we favor going with large biopharma companies that have vaccine products in later stage clinical trials such as JNJ and AZN. We have traded the pure plays such as Moderna (MRNA) and Novavax (NVAX). But for example look at Inovio (INO) down in pre-market because the FDA delayed its Phase 1/2 trails because of lingering questions.
Summary: If you are adding new positions consider if it is a long term hold or a momentum trade.