SMID Cap Life Science Update: Are You an Investor or Trader?

SMID Life Science Stocks: Investor or Trader?

• Despite choppy trading there is an upward tilt to life science stocks since 9/26/22 lows.
• Three stocks are  strong holds: EVH,HOLX and QDEL.
• Can gene therapy break through in 2023?

Our SMID (small and mid) life science portfolio had a good week despite a choppy market focused on the FED and rising bond yields. In our previous weekly post we showed a small correction with many traders taking profits from the so called “January Effect” which was strong this year. The question going forward is whether small caps can continue their momentum with the MACRO headwinds and not supported by earning growth. Well two of our picks in this SMID Portfolio are supported by good earnings: Hologic (HOLX) and Quidel/Ortho (QDEL). Many of the other companies do not have growing revenues but are more driven by their milestones, business model and overall biotech market strength. The more speculative stocks took a hit and are off their 2023 highs: CRSPR (CRSP) and Geron (GERN). But overall the portfolio is well in the money. Pacific Bioscience (PACB) and Veracyte (VCYT) are well known momentum stocks favored by traders and are holding up well. Our favored holdings at this point in time are : EVH, HOLX and QDEL. Two weeks ago based on waning momentum in bellwethers ARKG and XBI we suggested that short term traders take profits.

Last week among the positive sectors were the Small Caps IJR up 1.42% and IWM up 1.48%. Healthcare was a laggard down 0.42%.

• We added to our position Quidel (QDEL) based on recent earnings and guidance.
• Biggest losers are CRSPR Therapeutics (CRSP) and Cryoport (CYRX). We bought Intellia (NTLA) to complement CRSP position in gene therapy.
• CRSP and PACB are among top ten holdings of ARKG.
• The Evolent (EVH) Health chart broke through the $32 level. The analyst recommendation is at 1.70. Financial results are coming on 2/22.

We are encouraged by small cap outperformance in life science stocks in the face of bearish commentary from many top strategists. However to maintain the momentum we will need extensive debt and equity financing to move pipelines forward. Moreover M&A has been running at a low level but valuations are attractive.

No positions have been sold since 1/20/23 date of our first post; % performance is from our actual trades.