2020 could be a huge year for stocks, according to Matt McCall … but there’s one sector he sees soaring above all others
***The Digest’s holiday schedule
Please note we’ll be taking a break from the Digest tomorrow and on Christmas to spend time with loved ones. We’ll pick back up on the 26th.
Merry Christmas and Happy Holidays to everyone!
***“If you want to make real money next year, you must have investments in this sector.”
That quote comes from Matt McCall.
For any newer Digest readers less familiar with Matt, he’s one of the most successful analysts in InvestorPlace’s history.
Over the past 10 years, he’s found 16 recommendations that have gained over 1,000%, and more than 200 stocks that have risen between 100% and 999%.
Given this track record, his description of a sector poised to make “real money” takes on an added gravitas.
So, what’s he talking about?
I’ll let Matt describe it himself. This comes from his just-released issue of Early Stage Investor:
At Early Stage Investor, my goal is to make you money through “venture style” investing. My goal is to get you into the world’s best small companies poised to grow five-fold, 10-fold, even 20-fold or more in size.
A critical part of achieving this goal is investing in industries poised for hypergrowth. So predicting and forecasting the giant industries of tomorrow is a big part of my job. You could say I’m trying to predict the future every single day.
That’s why I feel comfortable making a major 2020 prediction of my own … one I believe will make you a lot of money if you act on it …
…there’s one sector that I predict will outperform all others in 2020.
My end of year prediction?
2020 will be the Year of Biotech.
In today’s Digest, let’s dig into the tailwinds Matt sees for this sector. As he tells his readers, the next decade will witness advancements that we can only imagine in our wildest dreams … from a possible cure for cancer, to artificial intelligence drug discovery, to devices that will track our vitals 24/7.
The future of healthcare starts in 2020. Today, let’s find out why.
***Why 2020 will be the year of biotech
Matt begins by looking at the biotech sector from a technical perspective, juxtaposing it with the tech sector.
You see, technology stocks have been among the best performers for this decade. Since April 21, 2015, the Nasdaq 100 Index — which consists of the largest, non-financial U.S. stocks on the Nasdaq – is up 93% and trading at its best levels ever.
Biotech stocks tell a much different story. Since April 21, 2015, the Nasdaq Biotech Index is down 1%. Broader tech has outperformed biotech by more than 92X.
Biotech investors have not been rewarded in the last five years, but that is about to change …
… the charts are telling us something important right now. Recent price action in biotech stocks is significant, as we may have already seen control start to swing in the favor of the bulls. Since the end of September, the Nasdaq Biotech Index is up 20.9%, more than doubling the return of the Nasdaq 100.
Matt goes on to tell readers how one of his favorite chart patterns is a long-term breakout that occurs after years of consolidation. And that’s exactly what looks to be happening in the Nasdaq Biotech Index.
After years of sideways action, the charts suggest the rally is set to continue into 2020 — bringing new highs in the coming months.
From a technical perspective, the next breakout would be a rally through 4,165, the all-time high set in July 2015.
Matt summarizes this point by likening biotech’s sideways chart action for the past 5 years to a coiled spring, tightly compressed. When it finally releases, Matt expects all that pressure to explode, resulting in a multi-year bull.
***Big money is funneling into biotech
We can identify a second sign of bullishness in the biotech sector by following the money-flow.
Matt explains that through the first nine months of 2019, the biotech and pharma sectors saw $195 billion in mergers and acquisitions. Without even a full year’s total, that’s already the second largest amount ever, behind only 2015 when the index hit its all-time high.
Why are we seeing so much activity?
… large pharmaceuticals, which are typically the buyers, are increasingly desperate for new revenue sources. For example, pharma giants Merck and Pfizer are expected to produce $46 billion and $51 billion in revenues this year, respectively. They will find it difficult to grow annual revenue by 5%, let alone 10% …
One way to boost revenue into double-digit growth is to buy a company with a potential blockbuster product.
Matt then highlights several M&A deals from 2019, including Bristol-Myers Squibb, Celgene, AbbVie, Allergan, Pfizer, and Merck, concluding with …
… investors made a lot of money off very large deals in 2019 …
This upside potential is why big pharma companies will continue to buy smaller biotechs well into 2020 and beyond.
***The tailwind of the presidential election
Matt explains that a Trump reelection, which is currently what pundits are suggesting, would generally be bullish for biotechs.
That said, this is a bit of a wildcard. That’s because a democratic president has the potential to weigh heavily on the sector.
… most of the (democratic) leaders in the polls lean toward more regulation on drug companies, including biotech. For example, a win by Elizabeth Warren would hurt the biotech stocks if she goes ahead with her Medicare for All plan and regulations on drug pricing.
A win by Trump, on the other hand, would unleash a huge rally in healthcare stocks, and biotechs should rally to new historic highs.
I am not interested in getting into political debates, but I will always share with you what an outcome may mean for our stocks. As we get closer to the November 3 election, I will keep you up to date on my view.
Though it’s clearly too early for any meaningful prediction, for fun, below is how oddsmaker and gambling site, Bovada, is seeing the election.
For you non-betters, the implied probability of a Trump win with the numbers above is 51.2%.
***The technological explosion behind biotech
Over the last five years, biotech companies have poured billions into the quest to find the next blockbuster drug. Matt tells us that the prospects for breakthrough treatments in the 2020s have him more excited about biotech stocks than in many years.
One of Matt’s favorite sub-sectors in biotech is gene therapy. He already has three such stocks in his Early Stage Investor portfolio.
Two stories are attracting buyers to gene editing stocks. First, initial reports out of Phase 1/2 trials have been better than expected. And the second is those deals we talked about. Specifically, gene therapy stocks are being bought by large pharma companies.
***So how could an investor play this?
The easiest way would be through a biotech ETF that would give an investor broad exposure to the entire industry.
An example is the iShares Nasdaq Biotechnology ETF, IBB. It contains heavyweights Amgen, Gilead, and Biogen, among others.
Below, you can see IBB more than doubling the S&P over the last three months.
While IBB will give you great exposure to the biggest biotechs, you’re unlikely to see the explosive gains Matt has referenced. That’s because they tend to come from much smaller biotechs that aren’t included in many of these large-cap ETFs. These are the small companies getting bought-out by big guys.
For Matt’s help in identifying these smaller biotechs through Early Stage Investor, click here.
Either way, if you don’t have exposure to biotech, it’s worth your time to give it a look. I’ll give Matt the final word summarizing why:
During the last biotech boom (2008-2015), the AMEX Biotech Index gained 777%. Investors smart enough to get into biotech stocks had the opportunity for life-changing gains. Exact Sciences (EXAS) soared 54X, Regeneron Pharmaceuticals ran 34X, and Incyte (INCY) gained 31X.
I believe several biotech stocks are poised to give investors another opportunity for similarly huge — or even bigger — as we head into the Roaring 2020s.
Have a good evening,