Small Cap Biotechs Slammed by SVB Collapse
- Small Cap biotechs have been hit hard and needs time to sort out.
- Momentum and sentiment in a risk-off mode.
- Opportunity to assess good stocks for longer term after seeing how they trade.
Nothing like a banking crisis to start off a weekend. But maybe by the end of this upcoming week of turmoil we”ll worry less about inflation.
If you have been following our Life Sciences investing Model we our focused on two sectors in Healthcare: SMID Caps and Large Cap Biopharma. In this article we will focus on SMID caps which got slammed last week by the Silicon Valley Bank Collapse. We cannot cover the details of SVB financial problems but can say that with such a major collapse concerns will arise about sources of funding for smaller companies.The Parent SVB Financial Group was racing to raise fresh capital when depositors started withdrawing funds just as the Regulators stepped in. One of the ripple effects was a sell-off in SMID biotech stocks that may need to raise capital in coming months. We began tracking this SMID Life Science Portfolio on February 5 after nice returns through January until momentum began to wane. By mid- February profit taking ensued and we advised traders to sell selectively yet the real damage came weeks later eliminating in Fridays’ sell-off.
So it’s obviously difficult to call any trades for the upcoming week. Maybe do nothing until market settles down as many stocks were still up YTD. Latest news as of 2 am. EDT is that the FED regulators have proposed solutions to shore up other banks.Based on the latest information many futures contracts are in the green, We would expect large cap biopharmaceutical stocks to hold up during this turmoil.
Here is a summary of the SMID Portfolio with comments:
- As you can see, the damage to small caps was severe taking most of the portfolio to a loss.We did sell XBI last week at a profit.
- Trading these stocks as a group and exiting on our negative momentum call in early FEB would have resulted in big profits.
- It’s hard to call anything until the dust settles from the SVB collapse and see which companies were entangled with smaller banks and who needs to raise capital.
- Small cap biotechs are always in need of fresh capital to move their products forward.
- The XLV Healthcare Select SPDR was down 3.89% for last week and down 8.61% YTD.
|P 1/20/23||% Perf||2/4/23||3/11/23|
|Company||Ticker||$||P||% week||% Perf||P||% week||YTD %||% Perf|
- note % performance as of 3/4 was from original trade and not updated from recent volatile week.