Biotech Playbook 2021 Part 2: Rotation Rally Brings Relief After Fed Pivot

  • Our large cap biopharma picks have made nice gains: ABBV and VRTX.
  • Rotation rally favors energy and financials.
  • More green in medtech today FSMEX, IHI, XHE.

Has anything really changed since my last post? Consider the following macro events. Build Back Better is being postponed or re-structured due to the lack of a Manchin and Sinema support. For now it also means the drug pricing legislation involving Medicare is moved out into 2022 as well. The new aggressive Fed taper combined with a rise in interest rates for 2022 adds a new element of risk to portfolio management. Monetary policy is a headwind for 2022. This could result in continuing to favor more defensive stocks like healthcare. More importantly the rise of omicron variant could reduce global growth prospects and favor life science stocks  that helps deal with the pandemic.  As of last week here was our investment strategy in healthcare:

  • Stay long large cap Biopharmaceutical stocks focusing on ABBV, BMY, REGN, RHHBY, VRTX.
  • Hold UNH as a top pick for healthcare with  PRHSX and XLV as an option for non-traders.
  • Add ballast to your healthcare portfolio with medtech and molecular tools.

Stocks had a nice bounce today with a tinge of rotation into cyclicals imbued with some optimism on COVID omicron being ameliorated by vaccines. The surprise rally was a snapback from 3 days of losses.  The Nasdaq was up 2.4% but small cap biotechs still lag and should be traded. The XBI could not gain traction today from Friday’s modest rally from the $110 bottom and the more speculative ARKG is mired in the mid-60s off February highs of $110. But any nice bounce on the IWM should help small cap biotechs.

Should the market rotate more toward cyclicals the defensive stocks like healthcare could become relative laggards. Today the strongest sectors were energy (XLE) up 2.8%, financials  (XLF) up 2%, and industrials (XLI) up 1.98%.compared to healthcare (XLV) up 0.37%. Semiconductor chips remain the hottest sector with the SMH up 3.61% today. Stay diversified.

As we have said throughout 2021 we need small and mid cap biotechs to regain enthusiasm and today some of our top picks from May 2021 saw good gains: CYRX up 5.3% to $58, VCYT up 5.4% to $43.30, and PACB up 5.3% but CRSP was down 1.39% to $79.92. Quidel (QDEL) had a good run from the $120 level but got slammed  4.38% despite supportive news from Biden’s pandemic plan to provide rapid tests.

Until we get trending news and new stock picks stay with the portfolio strategy. The biotech tape looked much better today. Aggressive traders might look for a pop in the XBI trough the $120 level.


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