Looks Good for Biotech Stocks-Why we are bullish.
- Technicals and Relative Strength (RSI) are lined up for bullish trades and good momentum.
- Biopharmaceuticals offer good value and new themes such as obesity and neuroscience.
- Innovation and M&A will drive SMID caps higher.
We are calling a trading bottom in healthcare stocks. The XLV bounced off the bottom this month up 4% to the $144 level led by biopharma and medtech. Earnings from Abbott, Intuitive Surgical, JNJ and United Health helped support the gains. The IHI U.S.Medical Device ETF is now up 9.46% YTD and 17.34% over one year. All three of our bellwether biotech ETFs have also turned buliish for traders: ARGX up 12% in1 month, IBB up 2.5%, XBI up 0.52%. Of course biotech stocks are notoriously volatile but you need to decide whether you want to trade SMID caps, pick a large cap with a good dividend or even buy a health science mutual fund. We would start by making sure you are in with a MedTech stock or fund like FSMEX up 6.23% past month that holds most of the best companies.
The market today was rattled by the Chinese AI model DEEPSEEK which questions assumptions on how much investment is needed to implement AI, for example infrastructure vs software. So the CAPEX for AI may still be high but the allocation will change. The Chinese breakthrough came despite export controls on NVIDIA and other semiconductor companies.
XLV. IHI
If you look at our article from last week and earnings reports you can see the reversal and uptrend. Abbott stock took off after a guidance uplift from glucose and diabetes testing. Intuitive Surgical has been a steady limber up 10.83% YTD. W added to our Bristol Myers position after earnings and it is up 6% YTD and Ofers good value with a FWD PE of 8.57 and a 4% dividend. BDX came back last week and is now up 7.5% YTD with earnings due on FEB 6. Our top large cap picks: are ABBV, BMY, GILD, LLY, PFE, and VRTX. Eventually you have to look at AZN and REGN laggards YTD.
Based on our review of SMID caps we think SMID and speculative biotechs should do well. The general ETFs covering small caps have all turned up and assuming stable interest rates SMIDs can lead the market early in 2025. Powerful long term needs drive these stocks higher: cancer therapies, infectious diseases, and neurodegenerative diseases like Alzheimers. . We have developed a trading model for selected SMID biotechs and will present updated metrics for our Trading Model tomorrow. We still hold the following SMID stock from our Trading List at substantial profits: ADPT, CPRX,CRM, GH, SUPN, VCYT ;and have sold many others maybe too soon: NTRA, TWST, VCEL but we are limited not only by the size of our Life Science Portfolio but by the asset allocation of healthcare compared to technology, financials and industrials. Up to now the market gains have been narrow dominated by MAG 7 technology stocks and AI.