Best Rally Since June 2020 Eases Fear of Rate Rise
A rise in Treasury yields curbed the Government Bond rout from last week. Vaccine roll out now with JNJ continues to be the driver with hopes of an improving economy.The Ten Year Treasury Yield dropped to 1.446% off last week’s trading high of 1.6%. The February ISM Index hit 60.8 better than estimated 58.8. NASDAQ led the rally up 3.01% with the QQQ . Life Science stocks lagged slightly with the IBB up only 1.73% and VRTX down 1%. Volatile ARK funds moved up over 4% and NVAX was up 3.92% looking get approval by this summer. The XBI was up 2.4%. Medtech was green with the XHE up 2.15%. Chips made huge comeback with the SMH up 3%.
Given the shift to reflation and waning momentum of biopharma stocks a more balanced portfolio is advised. Speculation remains active for traders but technology and financials look stronger than healthcare in days ahead.
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Biotech Stocks Can Provide Growth and Value
- With rising rates traders and portfolio managers are rebalancing to value.
- Healthcare stocks lagged in February with the rebalancing.
- Small caps of all shapes and sizes still looks good. Speculation is active.
We alerted you on a Feb 15 post that a reflation trade was emerging as traders pivoted to energy and financial plays. The XBI has been in free-fall since Feb 9 until Friday where it stabilized at $148. At this point you have to follow the technicals as earnings and guidance are out and the major conferences are over. February gains have been wiped out but we are still up YTD if the XBI holds $140. As we have said many times the XBI is a bellwether ETF and can be volatile because it is equal weighted and rebalanced often. This trend continued over the past week as energy and the commodity complex were leaders and the Nasdaq-100 (QQQ) down about 5%.
Caught up in the rotation sell-off were coronavirus stocks particularly COVID Diagnostics . A few diagnostics stocks (ABT, OSUR, QDEL) have been crushed as the vaccine rolls out with expectations of lower test volumes. We’ll see what happens next week to COVID Vaccine stock leaders (BNTX,MRNA, NVAX) now that the JNJ single shot COVID-19 vaccine is expected to roll-out. Coronavirus mutants have become a cionb=cersn so we will be looking at dat to see how vaccine manufacturers can reformulate to maintain efficacy . Our core pandemic positions are ABT, GILD, GNMK, HOLX, and TDOC; we would look to going long again in QDEL and VIR,
Biopharma Has Been Weak But Represents Good Value Going Forward
We recently reviewed large cap biopharma stocks which have been in a mild correction but they can provide top line growth plus value with dividends. Our core holdings are ABBV, BMY, RHHBY but we missed the big move iEli Lilly (LLY) MRK missed on recent earnings and the stock took a hit. GILD is also weak but is a play on the Kite Pharma deal with CAR-T technology for lymphoma . More aggressive iinvestors would look to trading R&D announcements from REGN or approval of an antibody drug for Alzheimer’s Disease in June by Biogen (BIIB). As mentioned in our previous posts you can do well buying the IBB or XPH rather than picking large cap stocks.
As a sign of weakness in biopharma note that the Investor’s Business Daily has only 2 Life Science stocks in its IBD 50 analysis. The two are : Ligand Pharma (LGND) #24, Hologic (HOLX) #45 but two are notable -Repligen (RGEN) is a sector leader and Idexx Labs (IDXX) is aLarge Cap 20 Leader.
Small Caps Are Still Leaders and Should Support Life Science Stocks
Our best winners over 12 months have been smaller caps like GNMK, PACB and TDOC but the momentum is ebbing. The IWM is up 11.35% YTD off highs of early February , and the iShares Russell 1000 Growth (IWF) is down 0.8% YTD. The iShares Russell 1000 Value is still up 5% YTD A better small cap ETF is the iShares Core S&P Small Cap (IJR) up 14.35% YTD. The IPO market is still robust and low rates support financing of biotech companies are and small.
Long ABT, BMY, GNMK, GILD, GKOS, HOLX, JNJ, RHHBY, TDOC
Healthcare Model Portfolio from 10/25/20
| Initial | ||||||||||||
| Stock/ETF | Ticker | Price | Wgt | P 11/13 | P 11/27 | %Perf | Price | QTR | 2020 Yr | Price | %Perf | |
| 10/25 | % | 1 mo. | 12/31 | % | % Perf | 2/28/21 | month | |||||
| iShares NAZ Bio | IBB | 136 | 25 | 141.06 | 143.22 | 2.27 | 151.5 | 11.9 | 25.7 | 156.93 | -0.7 | |
| iShares Russell 2k | IWM | 163 | 10 | 173.51 | 184.37 | 16.56 | 196.4 | 30.9 | 18.3 | 218.31 | 1.64 | |
| Merck | MRK | 80 | 10 | 81.09 | 79.86 | 2.4 | 81.77 | -1.39 | -10 | 72.62 | -9.51 | |
| United Health | UNH | 330 | 25 | 355.67 | 337.94 | 5.44 | 350.7 | 12.5 | 19.3 | 332.22 | -4.48 | |
| SPDR S&P Bio | XBI | 117 | 5 | 125.04 | 131.46 | 11.95 | 140.8 | 26.3 | 48 | 148 | -2.82 | |
| Healthcare SPDR | XLV | 108 | 25 | 112.12 | 109.44 | 3.35 | 113.4 | 7.55 | 11.4 | 112.61 | -4.86 | |
| S&P 500 | SPY | 380.36 | -1.05 | |||||||||
| NASDAQ-100 | QQQ | 314.14 | -4.26 | |||||||||