Top Growth Opportunities in Healthcare: Biopharmaceuticals and Genomics
- SMID life science stocks lead the way with the XBI up 37%.
- Top new picks in large caps biopharma and health-sciences: BMY, ISRG and TMO.
- Precision Oncology and Genomics are important themes for next-gen tools and diagnostics: ADPT, GH, ILMN, NTRA and PSNL.
As the Healthcare sector picked up steam in early November we thought it was important to remind investors in this Article of the importance of large cap biopharma stocks in this rally and you can see it now with the weightings in the XLV now up 12% YTD. We also broke down other components of the XLV and other Healthcare Funds the subsectors which we call broadly Health Sciences, and is the primary focus for this market letter. Most have been in a bear market since 2022: SMID cap biopharma , diagnostics and research tools, vaccines and MedTech.
We called the biotech rally in June after reviewing articles from ASCO which showed the continuing trend and potential of Precision Oncology and Targeted Therapy. Moreover the 4th Quarter in any given year is usually good for biotech and smaller caps if the NASDAQ is bullish. But we could be ahead of expectations given the strength of the rally up as much as 30% YTD. The concern for any momentum rally is it could end abruptly with profit taking particularly with a tax year turnover looming.Concurrent with the move and rotation into healthcare stocks over the past month, investors are now rotating out of technology shares and into the financial and industrial sector so keep this in mind as we enter 2026.
Biopharmaceutical Sector
Since mid-year 2025 investors have moved into Large Cap Biopharmaceuticals and our top holdings have been: ABBV, GILD, LLY, REGN and VRTX. Recently we have added Bristol Myers -Squibb (BMY) and two Swiss stocks : NVS and Roche ADR with attractive valuations and a built-in currency hedge. Here is our review from 9//1/25. Many of these large cap are underperforming ETFs like the IBB up 28% YTD because the SMID caps have outperformed the large caps since November 1 of this year. One big laggard we recently added is Bristol Myers-Squibb (BMY) that was up over 6% over 6 months and offers good value with a fwd/PE of 8.73 with a P/S of 2.22 and a dividend of about 4.7%. A recent upgrade by Guggenheim helped.
And you don’t have to pick these large cap stocks as funds like Van Eck Pharmceutical ETF (PPH) up over 16% YTD and Fidelity Select Biotechnology (FBIOX) up 35% YTD have a large cap biopharma weighting. with the added diversification of Mid cap growth like Alnylam Pharmaceuticals (ALNY) up 69% YTD. There is still political risk from the Administration on pricing policy, support of basic research(NIH) and issues at FDA and CDC but overall the valuations and growth potential seems to outweigh this consideration.
SMID Life Science Stocks
Most of our healthcare trading activities is focused small and mid (SMID) Life Science stocks and they can provide huge returns but are quite volatile. Scroll back and read about our SMID trading model for small cap biopharma stocks. We try to track about SMID 30 stocks in our model and communicate our trades on some of our most important holdings. The SMID stocks track the IBB and the XBI and many are up more than 50% significantly boosting life science portfolios. Clinical events and licensing/M&A are the current drivers which you know create big gains and losses as most of these companies have little revenue or profits.
Our previous posts updated our current focused trades in SMID biotechs. Here are some of the profitable SMID trades we still hold: ADPT, COGT, CRMD, CYRX, EYPT, GH, ILMN, IMVT(ROIV), PSNL, QDEL, RYTM, SUPN, XNCR,
MedTech: US Medical Devices, Tools and Diagnostics
Our top picks in Tools and Diagnostics became a little frothy and sold off a bit but are still leaders utilizing genomics for high sensitive oncology diagnostics; ADPT, GH, PSNL NTRA and PSNL; And we recently added to Ilumina (ILMN) at $100. A new testing market has developed for measuring the therapeutic benefit in oncology called an MRD ( Measurable Residual Disease). As a new example of applications of genomics based tools today Pfizer announced a licensing agreement with Adaptive Biotechnology to identify specific T-cell receptors for drug development in rheumatoid arthritis.
We consistently own several large caps in this sector but overall the momentum is lacking but these are solid companies some with nice growth prospects despite the maturity of the companies. Our Top Large Cap holdings are FSMEX, PRHSX Funds and ABT, BDX, BSX, JNJ. ILMN, ISRG, TMO and we are occasionally trading the IHI up only 6.38% YTD.Many of the large caps were previously long term holds but over the past two years the sector trails pharmaceuticals. You can see this strategy playing out in JNJ up 48% YTD, which was restructured to focus more on biopharma. One of the more interesting companies in MedTech is Intuitive Surgical (ISRG) up 3.9% YTD with Sales growth of 22% per QTR expected with FDA approval of their da Vinci System SP with expanded applications.The stock is near it’s low yet with a fwd/ PE of 56 and a highP/S of 20. But ISRG is a pure play in Robotic Surgery.
IHI U.S Medical Devices (IHI). ThermoFisher Scientific (TMO)
ThermoFisher Scientific (TMO) is our top large cap pick in the Health Sciences area. We are up 20% since buying the stock in early October. the fwd/PE is 20 with a P/S of 4.92 and an analyst index of 1.46 a strong buy with several upgrades in Q4. Our top fund in the Heallh Sciences sector is T.Rowe Price (PRHSX) up 17.7% YTD with Top Holdings of many of our favorite stocks: LLY, ISRG, and TMO. How tough is the MedTech sector? Well one of the Top Funds over the long term was Fidelity Select Medical Technology (FSMEX) but now is down 4.79% YTD yet up only 0.89% over 3 months. Top holdings include: BSX (up 3.65%), DHR, TMO, ISRG and EW (up 12%).
January 2026 could be a major pivot point for many healthcare stocks. Not only the tax impact from investors pushing out gains from 2025 into the new year. Also coming will be 2025 corporate earnings and guidance for 2026. We don’t see any forecasts or assumptions for a healthcare sector downgrade at the present time but we have concerns about the Administration support for Cancer research and FDA approvals for new drugs.