(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of ALKS.)
Biotech shares could be on the verge of a massive breakout as measured by the SPDR S&P Biotech ETF (XBI). The group is being led higher by companies like Bioverative Inc. (BIVV), Radius Health Inc. (RDUS), and MiMedx Group Inc. (MDXG), which have all surged by over 10 percent to start 2018. But the rally could be just getting started, because the Biotech ETF could be heading toward new all-time highs in the not-too-distant future.
The rise in biotech stocks so far this year has been led by small- and mid-cap companies, while the larger-cap companies like Biogen Inc. (BIIB), Amgen Inc. (AMGN), and Vertex Pharmaceuticals Inc. (VRTX) have all fallen to the middle of the pack. Gilead Sciences Inc. (GILD) is the only large-cap biotech stock that's up by over 10 percent.
The SPDR S&P Biotech ETF is nearing its all-time high at around $91, a level it has not seen since July 2015. The group fell hard in the summer and fall of 2015, as drug pricing took center stage during the 2016 U.S. election cycle, with fear that controls could be put in place.
But with drug-pricing talk abating recently, investors have been moving back into the sector. The chart below shows how the SPDR Biotech ETF is now approaching a massive breakout, one that would take the ETF into all-time high territory that may lift the entire sector.
Small- and Mid-Caps Lead
The recent rise in the sector is not being led by the usual big 4 biotech stock: Amgen, Biogen, Celgene Inc. (CELG), and Gilead, but by small- and mid-cap companies.
Of the top 25 stocks in the SPDR S&P Biotech ETF, five stocks are up over 10 percent, and four have a market cap of less than $10 billion.
Data Complied from YCharts
Of the top 25 companies, only four stocks in the group are lower, while the average gain on the year is about 4.6 percent. You can see how the distribution of the winners in the group is diverse. It's not concentrated on just a handful of stocks, but is spread widely throughout the sector.
A massive breakout in biotech is nearing, and it is likely one the majority of the stocks within the sector could benefit from.
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.