It’s clear that there’s still a lot of headline risk in the market right now, and the biotech sector is no exception. In fact, while biotechs are always vulnerable, the sector looks particularly vulnerable of late.
Why? Well, Democratic presidential candidate Hillary Clinton recently tweeted about drug pricing.
A piece on Yahoo Finance summed it up nicely:
“Last week Turing Pharmaceutical’s CEO Martin Shkreli announced they would be skyrocketing the price of a newly acquired AIDS drug by over 5,000% … Hillary Clinton, in an attempt to cash in on the moment, basically tweeted that she didn’t agree with these types of practices, and would immediately put together a plan to make sure drugs are priced fairly in America.”
Investors reacted, to say the least. The bundle of biotech stocks that make up the iShares NASDAQ Biotechnology ETF (IBB) fell 5% in one day, bringing losses over September to 15%.
Meanwhile, the ProShares Ultra Nasdaq Biotechnology ETF (BIB) was battered even more … losing 28% during the same time period and putting it officially in bear market territory.
What to Do With Biotech Stocks
Many in the financial news space have been giving this savvy advice in the wake of such a drop: There’s no reason to panic. This is actually the fifth time since 2009 that small-cap biotech stocks have entered a bear market — once again, it comes with the territory.
Besides, I’ve been beating a similar drum with regards to the market’s recent drops across sectors. I mentioned it when talking about U.S. stocks broadly, when talking about Apple (AAPL) and when talking about Johnson & Johnson (JNJ) recently.
That drum? Damage doesn’t necessarily mean to head for the sidelines.
Despite the recent bloodbath, there are still buying opportunities in biotech stocks and the healthcare sector. Savvy investors will keep an eye out for companies that fare well during broader market sell-offs and snatch them up at these discounted prices.
Gilead Sciences (GILD) is just one example. The stock gained over 1% Tuesday, even as the Nasdaq sank. It has been battered along with its industry over the last month or so, but it still displayed a relative strength close to 50 vs. the broader market. And GILD still has great long-term potential but is trading for just 8 times forward earnings and 10 times trailing earnings thanks to the aforementioned weakness.
That multiple is especially impressive considering the 17% per year growth on tap for earnings — a rate that translates to a PEG ratio of just 0.5. GILD’s sales are on tap to grow by almost 27% this year, for instance.
Put it all together and it once again boils down to the investing strategy I’ve been saying over and over again — find a growing industry and find a strong company within it.
Then, when times are tough, you’ll find a bargain.
Hilary Kramer is the editor of GameChangers, Breakout Stocks Under $10, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.
