(Note: The author of this fundamental analysis is a financial writer and portfolio manager. He and his clients own shares of ALKS, ACAD and CELG.)

Biotech stocks have been red hot in the past week, and they may get hotter.

The iShares NASDAQ Biotechnology ETF (IBB) and The SPDR S&P Biotech ETF (XBI), two proxies for the biotechs, could rise 5 percent from their current levels. In total, that would add up to an 11 percent gain for the XBI and a 13 percent advance since the two sectors began surging on August 24. 

The breakout is being driven largely by  Gilead Sciences Inc.'s (GILD) announced plans on August 28 to buy Kite Pharma Inc. (KITE ) for $12 billion, which has caused investors to anticipate more deals in the sector. Gilead's stock has risen by more than 12 percent in the past week, while shares of Biogen Inc. (BIIB) and Celgene Corp. (CELG) are up by roughly 9 and 6 percent, respectively.  Shares of Juno Therapeutics Inc. (JUNO) have surged by nearly 40 percent, and Bluebird Bio Inc. (BLUE) by approximately 22 percent. (See: Why Gilead's Acquisition of Kite Is Not Enough.)

Breaking Out

 

 

 

The iShares NASDAQ Biotechnology ETF (IBB) reached a high of around $329 on July 25, proceeded to fall by nearly 9 percent through August 21, and is now advancing. It's already passed its old highs and now is trading at $330. The SPDR S&P Biotech ETF (XBI) has confirmed the move seen in the IBB, reaching a new high for the year as well. The biotech sector, as measured by the IBB, could rise by an additional 4 percent more from current levels, taking the ETF to around $343, while the XBI could climb by 5 percent to $87. We wrote on August 24 that the sector had likely bottomed and was due to turn higher. (See: Here Is Why A Biotech Bounce Is Coming.)

 

 

Red Hot Sector

Since August 24 both the XBI and IBB have gained 5 percent, while the S&P 500 has only climbed 1 percent. 

(Data provided by YCharts)

Immunotherapy Stocks

We can see from the table above that the best-performing stocks in the two ETF's have been Juno and Bluebird. These two companies, like Kite Pharma, are developing drugs that focus on immunotherapy cancer treatments. That could make them the next takeover targets, and thus help push the sector to higher levels.

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 holdingsInformation 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.

 

Want to learn how to invest?

Get a free 10 week email series that will teach you how to start investing.

Delivered twice a week, straight to your inbox.