Healthcare Performance in a Volatile Month

• Small cap biotechs continue weak-ARKG and XBI get no traction.
• Quality large caps remain good holds: ABBV, ABT, REGN, RHHBY, UNH.
• Sector shift to large cap cyclicals and value underway.

It’s been a rough month for small-cap biotech stocks amidst a general correction in the market which brought general indices down about 10%. Despite breakthroughs in vaccines, antivirals, sequencing and molecular diagnostics investor interest in life science stocks has waned.  Analysts and specialist hedge funds hit with big losses in the sector blame potential passage of drug pricing legislation by Congress and overvaluation of an avalanche of young companies that are overvalued yet have no clinical stage products. And overlay these issues with the strong statements by Chairman Powell on the taper and inflation concerns and you have risk aversion. As we await more data on the omicron variant and how effective our current vaccines will protect we have a greater period of uncertainty.

Over the past week, the market has moved toward value and industrial and away from the explosive growth and high PE of tech stocks that have traded on momentum. Among the weakest sectors were the Russell 2000 down 3.86%, the NASDAQ composite don 2.62%,, and Consumer Discretionary down 2.36%. So for the short-term we have big concerns about GDP growth from COVID yet intermediate expectations of inflation and rising rates.

Review our model portfolio performance below and notice that the XLV is still up 18% YTD led primarily by United Health (UNH) up 31% YTD. We previously recommended a more basic portfolio with the XBI AND the XLV but as you can see the IBB has taken a hit and is now at a loss for 2021 down 2.25% again today at $145.

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Our strongest recommendation has been to overweight large cap biopharma stocks like ABBV, REGN, and RHHBY that have growth and strong pipelines. We recently recommended Vertex Pharmaceuticals (VRTX) at around $180. As another contrarian play have a look at a laggard Bristol Myers Squibb (BMY) now at $57.39.

About mid-year we added medtech stocks to our portfolio with the IHI or FSMEX.