J.P.Morgan Healthcare Conference #JPM23: Biotech Rally Favors Smaller caps

Biotech Stocks Rally During #JPM23 Favors Smaller Caps

• Bolt-On acquisitions expected to bolster product pipelines.
• Macro headwinds lessened with moderating inflation.
• Small and mid-cap biotechs provide an innovation narrative.

Here are some takeaways from #JPM23:

1. Large cap biopharmas that outperformed in 2022 were generally weak last week from profit taking and portfolio rebalancing. Earnings reports with 2023 guidance are coming in about two weeks.Our top picks remain ABBV, MRK, and REGN. We also like BMY, GILD, LLY and VRTX.
2. SMID and speculative biotechs regained momentum over the past week.. You might call this the “January Effect” as JPM presentations excited new investors. The equal weight XBI gained over 5% for the week but is still down 10.4% for a one year period.Similarly the momentum driven ETFS in biotech ArkGenomics (ARKG) and Direxion3x Biotech (LABU) were both up over 16% for the week.
3. A big question for traders and investors is whether SMID Cap stocks can overcome fears of a recession and higher interest rates. The Russell 2000 (IWM) is starting to recover with the IWM up over 5% over the past week.But M&A expectations should support the sector.
4. We added one large cap stock recently to our model portfolio, Abbott Laboratories at a price of $110 to get more exposure in MedTech and Diagnostics. ABT has a FWD PE of 25.76 and a P/S of 4.34. The analyst rating is a buy at 2.0 and the dividend is 1.8 %.
5. We did not add any mid -cap devices and tools stocks to our portfolio but prefer fund s and ETFs for non-traders. The T.Rowe Price Health Sciences Fund (PRHSX) has as top holdings: UNH, TMO. LLY, DHR, ISRG.
6. Note we have a tiny bit of shares U.S Medical Devices (IHI) in the Model Portfolio. this ETF, combined with ABT, FSMEX and  PRHSX should give appropriate weighting to diagnostics and MedTech.
7. We currently hold several small cap life science and healthcare stocks that are up from the October bottom : CRSP, CYRX, EVH, GERN, HOLX,  PACB, QDEL, SUPN, VCYT.  Technicals are improving and we will track news.
8. mRNA vaccines show growth potential for new applications in infectious diseases: RSV, CMV and FLU.
9. Artificial intelligence (AI) is being utilized to improve productivity in drug discovery.

The model portfolio is a guide to healthcare and biotech sectors to assist your portfolio management. Note that major ETFs like IBB and XLV while they may outperform the S&P 500 they are underperforming as a “risk on” sentiment evolves. The large cap biopharmas remain at overweight and need to be added to your portfolio in lieu of IBB.

Disclosure: Long ABT, ABBV,BMY, FSMEX, GILD,  IHI, MRK, PRHSX, REGN, UNH, VRTX, XBI.