Biotech Stocks Make a Huge Q4 Comeback in 2019

Our Portfolio Calls Were Excellent.

Healthcare remains an Overweighted Sector for 2020

The biotech sector was virtually flat on 10/3/ 2019 and took off from there to give 30% gains in the XBI. The rally starts with healthcare stocks sparked by earnings and a realization that easy money from the FED would continue in the near term. Macro issues waned in importance as well and the seasonal rally was on helped by new product approvals from the FDA.

Our calls for biotech and healthcare stocks were good in 2019 and we expect the current momentum will carry us through January 2020. Here is a brief review of our major pivot points;

Early in January 2019 we attended the J.P. Morgan Healthcare Conference and selected three picks from the Conference. We subsequently provided updates on these companies. Here is the stock performance YTD but all were easy trades for profits after mid-January.

Amarin (AMRN) up 61.34% YTD. GenMark (GNMK) down 6.64% YTD, TeleDoc (TDOC) up 69% YTD.

We provided many other trading ideas in 2019 favoring gene therapy and mid-cap biopharma stocks.

From mid-year on we called for a strategy for a large-cap biopharmaceutical portfolio with a core position in five dividend-paying stocks: Abbvie (ABBV), Bristol-Myers (BMY) including Celgene, Gilead Sciences (GILD), Merck (MRK) and Roche Holdings (RHHBY), We felt these picks would outperform the large-cap-weighted ETF IBB that is up 25% YTD. With the exception of GILD, all of them did well even though we missed AMGN and VRTX.

For trading and a core overweight position in biopharma, we recommended the XBI up 32.7% YTD.

In mid-October, we suggested investors re-balance portfolios with healthcare stocks based on Q3 earnings from several companies. This report allayed fears about macros forces that dominated market sentiment from macro issues like the trade war with China and drug pricing reform.We followed up this post with tracking of the healthcare overweight call with a sector review including biopharma, MedTech and services.Here are some ETFs and funds that track these stocks:

• Fidelity Select Medical Technology Fund (FSMEX) up 30% YTD.
• T.Rowe Price Health Sciences Fund (PRHSX) up 29.27%.
• iShares Med Device (IHI) up 36.74%,
• Healthcare SPDR (XLV) up 25.5%

This bullish trend should continue through January 2020 at which time Q4 earnings and guidance are released. It may be more difficult to find new core positions but the tape is strong and trading opportunities abound. The Q4 chart for 2019 is the reversal of Q4 2018.

Track the QQQ up 36% YTD for market tends through January 2020.