• Seasonality and earnings favor life science sector.
• Innovation and new products drive investor interest.
• Biotech Rally can expand to SMID caps with help from general market. Buy IBB.

Despite a vicious bear market in 2022 biotech stocks have come back in October recovering with the XBI up 3.72% to $83.76 on Friday. Recent lows were hit on October 20 at $76.20. On June 14 the XBI was $63.32. The XBI is volatile but tradeable and with its equal weighting in biotech would track a rally in small and mid-caps. The XBI is a good indicator of momentum in the sector.

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The larger cap-weighted IBB also rallied last week to the $130 level up from lows at the $109 level on June 13. So we have higher lows after the September sell-off. The IBB holds many of the large cap stocks we favored in 2022: GILD, VRTX, REGN even our new buys like Illumina (ILMN). So if you are bullish on biotech for Q4  you should own both IBB and XBI.

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Here are some of our Top Large Cap Biopharma Picks and how they performed with earnings last week:

Abbvie (ABBV) flat up 0.37% to $147.61. Botox, Juvederm slowdown?Q4 Revs of $14.8 B an incr of 3.3%, EPS of 2.21 an incr of 24.2%PE of 20.88, Fwd PE of 12.51. Div of 3.82%

Bristol-Myers Squibb (BMY) up 6.4%  to $76.83. Q 4 revenues up 8% when adjusted for currency. EPS of $0.75. FDA approval of plaque psoriasis drug Sotyku. PE of 25, Fwd PE of 9.66. Div of 2.81%.

Gilead Sciences (GILD) popped over 12% to $79 level on earnings Friday. This move broke through the upward channel to highs for the year. Product sales were up 11% YoY to $6.1B.Oncology sales increased 79% YoY to $578M.Two upgrades bring the recommendations up overall. The PE is 29 with a Fwd PE of 11.95. Div. is 3.68%.

Merck (MRK) sales rose 14%to $15B  and raised guidance. Keytruda sales soared. Q3 GAAP EPS from operations was $1,28.

We will follow SMID picks from June to track news and performance. Most picks are laggards due to small cap avoidance. Winners since July 2022 are: CCXI (acquired), EVH, and XBI All show good momentum when IWM and XBI rally. We will update SMID focus stocks after Q3 earnings.

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