Tough Time to Trade Biotech-But Build a Portfolio for Q4

• Momentum is fading-XBI is a bellwether.
• Coronavirus pure plays are overdone especially vaccines.
• Sector shift trading away from biotech?

In previous articles we cautioned on new biotech positions because of Strong Headwinds primarily seasonality, speculative excess and geopolitical uncertainty. Until a new stimulus package emerges and coronavirus transmissions get under control stocks will remain volatile despite raging bullish sentiment. Moreover, more of the trading action has shifted to tech, semiconductors, precious metals and cyclical stocks as the biotech momentum has ebbed. Here are some strategies to consider for your life science portfolio.

Compare these two charts of biotech (XBI) and technology (XLK):

1. Core Holdings- Growth plus Dividends with Large Cap Biopharma.

We have emphasized this group of stocks over the past 18 months and currently hold many of them: ABBV, AZN, BMY, GILD, GSK, MRK and RHHBY. All of them pay decent dividends with treasuries paying under 1%. They are not without risk because of drug pricing rhetoric and potential legislation. A basket of them should lessen risk. An alternative is the IBB with has little yield but is up over 12% YTD.Some of these stocks also offer a Coronavirus Vaccine play: AZN GILD GSK MRK. Another option is the Fidelity Biotechnology Portfolio Fund (FBIOX) up 13.36% YTD at $23.70 focused on large and mid-caps.

2. Emerging Growth– Recent Picks that are Still Long Term Holds (or trades)

We own or have traded these biotech stocks and will add to them for the long term. Key themes are molecular diagnostics, sequencing and gene therapy, There are many new funds and ETFs that hold emerging technology and ‘innovation” stocks focused in gaming, genomics, gaming and online retail. Among them are sector ETFs such as the ARK family: ARKG, ARKK and ARKF that hold many momentum stocks.

Here are several stocks to trade or own for the long term. We will update this list as needed.

• CRSPR Therapeutics (CRSP) gene based medicines with a broad pipeline in immuno-oncology and hemoglobinopathies.
• Editas Medicine (EDIT) gene therapy covered from JPMorgan 2020 Conference.
• Genmark (GNMK) infectious disease diagnostics including coronavirus.
• Hologic (HOLX) women health and infectious disease diagnostics.
• Illumina (ILMN) leading player in gene sequencing.
• Teledoc (TDOC) telemedicine play recently merged with Livongo Health (LVGO) a 4X return since picked in 2018!
• Vir Biotechnology (VIR) recent IPO with focus on viral therapies for HBV, Flu and coronaviruses.

3. Trading Technicals and News when Fundamentals matter less.  Winning trades in 2020.

This market works for biotech traders who have the tenacity to sit in front of their screen daily trading the volatility of hot stocks like FAANG and the IBD 50 list. In these pandemic times with financial guidance withdrawn on many stocks technicals are the rule! Here are the top biotech stocks in the IBD 50 (investors.com) in order: Perkin Elmer (PKI), ThermoFisher (TMO), Vertex Pharma (VRTX), Abbvie (ABBV) and BristolMyers Squibb (BMY).

• Here are some of our best trades (mentioned in previous posts) that we still hold: AXDX up 50%, PACB up 71% in 2020.
• XBI on momentum or weakness. Current trading range is $109-115 with 2020 highs of $121.