The beaten-down biotech sector has surged about 8% this month, almost twice the return of the S&P 500 over the same period. The sector’s outperformance has been driven by new optimism on the market, led by individual stocks and ETFs such as the iShares Nasdaq Biotechnology ETF (IBB).
Several investment firms and analysts now say eight stocks are especially well positioned to rise higher, as outlined by Barron’s. The list includes shares of InVitae (NVTA), Veracyte (VCYT), Regenxbio (RGNX), Illumina (ILMN), and Guardant Health (GH). Others positioned to post above average returns include advanced gene-editing companies such as Intellia Therapeutics (NTLA), Crispr Therapeutics (CRSP), and Editas Medicine (EDIT).
The recent weakness in biotech can be partially attributed to uncertainty around the upcoming presidential election, per Barron’s. “We’re heading into an election year, and for many people in a highly regulated industry, this means uncertainty,” explained Gbola Amusa, the head of health-care research at Chardan investment bank. “Uncertainty hurts high-beta names.”
Value Biotech Names
As investors shift out of growth names and to more defensive pockets of the market, market watchers now see these biotech players as undervalued.
“It’s amazing to us that these companies, which are at the cusp of curing disease, are valued at such low valuations in the marketplace,” said Catherine Wood, CEO of ARK Investment Management. She likes Intellia, Crispr and Editas, which control the foundational patents for the most promising gene-editing technique, known as CRISPR-CAS9.
In the molecular diagnostic testing space, InVitae is seen as a winner, “riding down the cost curve aggressively of DNA sequencing,” said Wood. She says the company will help identify cancer at an early stage.
DNA sequencing company Illumina is also poised to outperform as it capitalizes on a 30% to 40% revenue growth opportunity and makes a comeback after a period of disappointing top line growth, according to Wood. “Last year there were 2.4 million whole human genomes sequences globally,” she said. “That’s half of the human genomes ever sequenced.”
To make money in biotech, Amusa recommends getting to know the market, and diversifying your portfolio. “For many people, I think it’s underappreciated that what drives the portfolio over five years sometimes is one or two winners that go up 30X. And some people sell after the 2X, which is often a mistake,” he added.