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Biotech Offers Good Potential

• Small cap are beginning to outperform in biotech and the general market. Trading action is favorable but volatile.
• Our core portfolio is still overweight large cap biopharma with ABBV, MRK, REGN, and VRTX. Look at value/dividend plays with GILD and PFE.
• With UNH momentum waning can MeTech pick up momentum?

Many top strategists and pundits say don’t get too excited by last week’s 2-day rally because of the Fed’s relentless commitment to higher rates. The economic data remains strong and the jobs data this Friday will help clarify, along with a Fed Meeting on Mar 22. Biotech stocks offer good potential for value and trading opportunities away from the MACRO.

But over the past week, the market had a nice uptick making it harder for defensive sectors like healthcare to get traction (XLV) up only 0.51% and down almost 5% YTD.  Materials up 4% and energy up 2.94% ( but lower than the up channel) were hot last week and tech was recovering with the QQQ up 2.68% off a February bottom. More importantly for biotech investors the Russell 2000(IWM) was up 2% and the S&P Small Cap 600 (IJR) up 1.77%. So although the IBB looks horrible the trades feel much better because the XBI held the bottom near $82 and averted a breakdown after the exuberance of January. So the more speculative so-called innovation trade in small cap biotech is still on as you can see from our Portfolio picks like Evolent (EVH) and Hologic (HOLX).

Catalysts coming next week are: Barclay, Cowen, and Jeffries Conferences; the Seagen buyout from Pfizer. Global central bank meetings.

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Serepta (SRPT) was up 23.4% for the week on news of their muscular dystrophy gene therapy product (SRP-9001) for Duchenne which gets accelerated FDA review. We own two gene therapy stocks CRSP and NTLA.

Our healthcare portfolio focus in 2022 was large cap biopharma and United Health.We updated the model in October 2022 adding small cap biotechs.  We still favor diversification with smaller cap biotechs. Also, you need to have more weighting in MedTech with positions in ABT, FSMEX, and IHI.

General approach to healthcare investing.

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