Biotech Has Bottomed… Value Plays Are Ahead

Delray Beach, Florida – The past two years haven’t been kind to biotech investors…

But the tables are starting to turn for the beaten-down sector.

According to the Club’s biotech expert, Marc Lichtenfeld, “There are amazing new technologies that have investors, healthcare professionals and patients very excited about biotech drugs. And the pipelines of biotech companies have never been stronger.”

Admittedly, biotech and pharmaceutical companies have faced a major loss of investor confidence over the last couple years.

While the biotech sector has historically outperformed the broader market, the election cycle sparked some questions about regulatory changes that could affect drug pricing, sales and earnings estimates, and company valuations.

Biotech companies have also received bad media attention from incidents such as Valeant Pharmaceuticals’ (NYSE: VRX) accounting scandal, and the price hike controversies surrounding Mylan N.V.’s (Nasdaq: MYL) EpiPen and Turing Pharmaceuticals’ Daraprim.

Many life sciences companies have suffered a recent slowdown in sales growth. According to Marc, “This is likely a result of more generics hitting the market. More generics mean the amount spent on drugs is less. Also, some companies may be more reluctant to take the price increases they used to.”

In spite of these recent ills, the long-term diagnosis for biotech stocks is very healthy.

This sector has handed investors incredible profits over the past several years… and it’s trampled the broader market.

Over the past five years, the iShares Nasdaq Biotechnology ETF (Nasdaq: IBB) has doubled the performance of the S&P 500. And at its mid-2015 peak, it was outperforming the broader market by more than 320%.

Now, those outsized returns don’t come without some extra risk… but the key to successfully trading this sector is to know what you’re in for and to adapt accordingly.

And this isn’t the first time that biotech stocks have seen wild volatility.

For example, during the first half of 2002, biotech stocks plummeted 57% in just seven months. That was quickly followed by a 96% rally.

It happened again in late 2008. Biotech stocks shed as much as 35% of their market before turning around for a massive run-up of 574% into mid-2015.

Today, the sector is down 25%, which is an improvement from its early 2016 lows.

As we’re likely witnessing a bottom for biotech stocks, it’s time to ask if the sector’s long-term value outweighs the short-term woes.

The Long Case for the Life Sciences

The potential in this sector is incredible. And it’s grounded in our inflexible demand for higher-quality healthcare and medical innovation, and our constantly improving standard of living.

By 2020, global healthcare spending is forecast to reach $8.7 trillion, compared to $7 trillion in 2015. As a percentage of GDP, healthcare spending is expected to grow slightly from 10.4% in 2015 to 10.5% in 2020.

As a result, industry sales for both pharma and biotech companies are projected to steadily rise in the years ahead.

And with so much innovation in subfields such as personalized medicine, new cannabis-derived therapies and wearable health-monitoring technology, it’s an exciting time to be an investor.

It’s why biotech stocks are recovering.

A good way to gauge market sentiment is to look at fund flows.

Fund flows are a measure of an asset’s net inflow and outflow of cash.

Over the last 12 months, the Health Care Select Sector SPDR ETF (NYSE: XLV) has drawn in more than $2.2 billion in net fund flows. And the iShares Nasdaq Biotechnology ETF has drawn in more than $912 million.

That’s a strong signal that sentiment is beginning to reverse as more investors become convinced of the sector’s long-term profitability.

We will continue to monitor the sector in the months ahead. And if you’re a long-term investor, now is a good time to start looking for value plays with great growth prospects.

Even if the market remains volatile over the next several months, the long-term rewards will be well worth it.

Good investing,

Anthony

P.S. Regardless of what happens with President Trump’s healthcare bill, the biotech sector is poised for spectacular growth in the years ahead… and Marc has uncovered the best way to find event-driven stocks that are roaring back to life.

These “Lightning Strikes” can happen in any industry… but the easiest and most profitable Strikes are spotted in the biotech sector.

Marc recently put together a presentation explaining these events. Click here to learn how Marc spots these Strikes and which stocks they’ll hit next…