(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of CELG.)
The large-cap biotech stocks have been left in the dust this year with the iShares Nasdaq Biotechnology ETF (IBB) rising by only 8.7%. This, by most standards, is a healthy gain compared to the S&P 500 rise of only 3%. But comparing the large-cap Biotech ETF to the more evenly weighted small-cap SPDR S&P Biotech ETF's (XBI) gain of over 18%, the lack of performance is startling.
Signs are emerging that the larger-cap biotechs are poised to break out in the near term, and that could send stocks like Celgene Corp. (CELG), Gilead Sciences, Inc. (GILD), Amgen Inc. (AMGN) and Alexion Pharmaceuticals, Inc. (ALXN) much higher. The Nasdaq Biotech ETF received a big boost on Friday, jumping by over 3%, when Biogen Inc. (BIIB) reported positive data for a drug in development to battle Alzheimer’s Disease, sending Biogen higher by over 20%. (For more, see also: Top 5 Biotech Stocks for 2018.)
The IBB ETF appears to have broken out after rising through technical resistance at $114 on Friday. Now the ETF may be on its way higher towards $121, a rise of another 4% from its current price $116.20, before reaching its next level of technical resistance.
Celgene, the maker of drugs to battle cancer, has had a horrible run since October of 2017, with shares down nearly 44%. But the stock could be on a rebound, with the potential to rise by about 18%, from its current price of $82.40 in the coming weeks should it rise above technical resistance at $86.50. The stock appears to have already broken a nearly 7-month-old downtrend, which is the first bullish sign. It could send shares higher to roughly $96.90 in the coming weeks.
Alexion shares are also nearing a break out of the technical symmetrical triangle. Should that happen, the stock could climb back to resistance at $147, a rise of over 12% from its current price of $131.20. The company develops drugs to battle rare disorders.
Gilead shares have had a significant reversal over the past couple of weeks and could be on their way to $82.50, a jump of almost 10% from its current price of $75.30. The only things standing in the path of the sharp rise is technical resistance at $76.50. The company makes drugs to battle Hepatitis C and HIV.
Amgen appears to be set to rise in the coming weeks as well but likely has the smallest gain ahead of the four. Shares of the biotech company have the potential to jump by about 5%, back to its old highs around $201, up from its current price of $191.10. (For more, see also: Biotech Stocks May See a New Wave of M&A in 2018.)
If the large-cap biotech stocks can start to rally, it would surely be a good sign for a continued rise in the rest of the sector. It may also prove to be an essential component to help lift the broader stock market.
Michael Kramer is the Founder of Mott Capital Management LLC, a registered investment adviser, and the manager of the company's actively managed, long-only Thematic Growth Portfolio. Kramer typically buys and holds stocks for a duration of three to five years. Click here for Kramer's bio and his portfolio's holdings. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future performance.