At the halfway point of the year, several industries have either underperformed or provided mixed results, leading to a rather ho-hum showpiece for U.S. blue-chip indices.
Biotech stocks, on the other hand, have consistently returned positive results in the markets over the past seven years. On paper, there’s very little evidence to suggest that the magical rally in biotech stocks will abate any time soon.
Since 2010, the annualized average of the month-over-month performance rate for the exchange-traded fund iShares NASDAQ Biotechnology Index (IBB) has outpaced the benchmark S&P 500, often with a wide margin averaging a 1.64% difference. In addition, both indicators peaked in performance in 2011, but the subsequent decline in blue-chip stocks was heavily pronounced. However, biotech stocks bucked the trend, continuing to make strong inroads.
From the beginning of the year to July 22, the NASDAQ Biotechnology ETF is up a cool 30%. In contrast, the S&P index hasn’t even gained 3%. The sharp dichotomy should bode well for three major biotech stocks scheduled to release their earnings report shortly.
Biotech Stocks: AbbVie Inc. (ABBV)
Among the biotech stocks mentioned on this list, AbbVie Inc. (ABBV) took a while to gain its footing in the markets, giving investors a scare when ABBV stock absorbed three distinct dips between February and mid-April of this year.
Since the beginning of the spring season, however, ABBV stock has been rockin’ and rollin’, moving up 8% year-to-date.
On the fundamental front, ABBV stock has an enviable record, beating Wall Street consensus for its earnings results nine consecutive times since April of 2013. Furthermore, the markets have successfully telegraphed AbbVie’s earnings outperformance since February of 2014.
Starting from the release of the first quarter of fiscal year 2014 report, ABBV stock has been positive on a week-over-week basis just prior to earnings release. Presently, ABBV stock is up nearly 2% week-over-week, which suggests the markets are confident that the drug manufacturer can pull another earnings surprise when its Q2 FY2015 results go public on July 24.
Who can blame the bulls? Out of major biotech stocks, AbbVie has one of the least vulnerabilities to unfavorable currency exchange rates, with slightly less than half — 47% — of its business occurring outside American shores. And outside of the aforementioned “three-dip drama,” ABBV stock has been looking at nothing but clear blue skies.
“If it ain’t broke, don’t fix it.” Until empirical data suggests otherwise, ABBV stock investors will stick to the timeless adage.
Biotech Stocks: Biogen Inc. (BIIB)
It was therefore little surprise that investors punished BIIB stock on July 22 when it was announced that Biogen’s drug trial — under a Phase 1 study — failed to appreciably decelerate loss of cognitive functionality typically associated with Alzheimer’s. BIIB stock closed the markets down 4.34% on the day of the announcement.
Nevertheless, several analysts covering BIIB stock — including heavyweight Deutsche Bank — remained bullish on Biogen, stating that the recent study results don’t change the overall picture. The markets are certainly in agreement, with BIIB stock up 16% YTD.
However, there are some lurking concerns. Despite only missing earnings expectations four times over the last 13 reports, Biogen’s most recent report — Q1 FY2015 results released on April 24 — failed to meet consensus.
Unlike AbbVie, there is a disconnect for BIIB stock investors between financial expectations and reality. For instance, BIIB stock was up an average of 3.36% on a week-over-week basis directly heading into the four times earnings ended up falling short.
This signals that BIIB stock may be more prone to jumpiness on significant news items than other major biotech stocks because of the enhanced speculation. However, Biogen shares have a very strong long-term trend line that is unlikely to be perturbed by short-term speed bumps.
United Therapeutics Corp.
High-flying United Therapeutics Corp. (UTHR) is the strongest name — on a YTD basis — among the biotech stocks covered in this article, up nearly 36%. However, some investors may be worried that UTHR stock may have peaked too early.
Moving inversely to ABBV stock, most of the gains made by UTHR stock this year occurred in the first 90 days. Since April 23, however, United Therapeutics shares are actually down more than 6%. Will UTHR stock’s earnings report — scheduled for release on July 27 — reverse this bearish trend?
Belying its enormous growth in the markets, against financial performance metrics, UTHR stock has been veritably mixed. Over the last 10 earnings reports, UTHR stock split its results right down the middle: five beats, five misses. Unsurprisingly, the markets have failed to predict United Therapeutics’ ebb-and-flow, with speculators pushing up UTHR stock prior to four of the earnings misses.
From recent statistics, it would appear that UTHR stock has a coin-toss chance of beating Wall Street consensus for its FY2015 Q2 report. But given that its earlier Q1 result was a miss, the bulls might have a slight advantage. UTHR stock hasn’t suffered consecutive earnings misses since February of last year, and as confirmed by the performance of the NASDAQ Biotechnology ETF, 2015 is the year of biotech stocks.
Although there are momentum concerns in recent months, UTHR stock is likely in a temporary consolidation phase that should be resolved to the upside.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.