Biotech Playbook Revisited As Technicals Weaken

Biotech Playbook Revisited

  • Healthcare portfolio performance and diversification can be achieved with 3 ETFs and one Life Science Fund.
  • Small/Mid-cap opportunities are good for traders in Q4 because of M&A and product news.
  • Technical need to turn around with improving momentum.

Medic, Hospital, Laboratory, Medical, Health, Doctor

Image Source: Pixabay

Over the past 12 months, our healthcare and biotech playbook required very little hard-nosed risk and stock picks. Since we developed our model portfolio in October 2020 we stayed the course in healthcare while holding a core group of large cap biopharma stocks that provided growth plus dividends. Our two core ETFs the IBB up 14% YTD and the XLV  up 16.34% YTD provided good performance which required little knowledge of the science and product news. Throughout 2021 we diversified our Healthcare Portfolio with MedTech and life science tools/diagnostics: the iShares US Medical Devices (IHI) up 21% YTD and the T.Rowe Price Health Sciences Fund (PRHSX) up 15.1% YTD. Now as we navigate a choppier period and recent weaker technicals you may want to take on more risk with small/mid caps that add beta to your portfolio.

Recent breakthroughs with mRNA vaccines over the past two years have shown the enormous potential for transformative therapies. DNA sequencing took off five years ago and new applications are still being developed. For the longer term molecular technology platforms such as CAR-T and CRISPR can offer therapies that can cure diseases at the gene level. Molecular medicines have advanced to the stage where exciting breakthroughs may occur more often and unexpectedly.

We recently picked Small/Mid cap stocks for more active traders and tracked them since May 2021. We expect life science stocks will continue to do well in Q4 because of M&A and breakthrough clinical news that tends to pick up in Q4. We added the IBB as a new trade despite its weak technicals at the SMA 50 line at a price of $170. We still have no positions in either the ARKG or the XBI as the momentum has been weak for small cap speculative biotech stocks that have no revenue. We sold a previous pick Editas Medicine (EDIT) at a 100% profit but may get back in.

Small/Mid-cap Focus Stocks (started 5/21)

Company Ticker P Revs MCap P/B Recom Perfor BioSector
      $M $B     6m %  
Cryoport CYRX 69 169 3.12 4.93 1.5 9.42 Industrial
CRISPR Thera CRSP 116.4 901.8 8.37 3.39 2.1 1.6 Therapy
Veracyte VCYT 48.9 157.5 3.17 3.39 2 16.4 Diagnostics
Quidel QDEL 147 1,840 5.76 4.34 2.5 16.5 Diagnostics

Notes: all have a good cash position, all are in the money from the early May purchase price, all are volatile.

But the issue going into Q4 is “Can smaller/mid-cap life science stocks rally?” The overall performance of the market has been in Large Cap Growth. Even the S&P 500 is up 18.6% so why add speculative small caps in biotech? You need to be a great stock picker to beat an ETF.

Compare these two small caps ETFs:

iShares Russell Growth (IWF) up 19% YTD

(Click on image to enlarge)

ARK Genomic Revolution (ARKG) down 15.7% YTD

(Click on image to enlarge)


Disclosure: Long CYRX, CRSP, IBB, PRHSX, QDEL, VCYT.

How did you like this article? Let us know so we can better customize your reading experience.


Leave a comment to automatically be entered into our contest to win a free Echo Show.