Innovation has been a hallmark of biotechnology for decades and, despite some of the hardest sledding in many years, 2024 could be a bounce-back year for biotech stocks.
The sector has suffered in this cycle. Investors have “rewarded” tech stocks and large-cap stocks for innovation, ignoring mid- and small-cap biotech stocks. Somehow, investors forgot about just how favorable the backdrop is for biotech, especially if AI is as big of a game changer as promised.
Why Biotech Stocks Have Been Stagnant… And Why That Could Change
What caused many of these stocks to go nowhere for the last several years and miss out on the “bull market?”
Maybe we can blame it on government interference in fixing prices of drugs, or more scrutiny of acquisitions. Maybe it was driven by concerns around impending drug-patent losses. Ultimately, it doesn’t matter. Biotech stocks have undeniable long-term tailwinds.
The reason the biotech sector is worth considering in 2024 is because of how fast technology is developing when it comes to medical drugs. Pharmaceutical innovation has increased both territorially and production wise. There are some wild developments taking place that put ChatGPT to shame in my view.
For example, innovations such as 3D bioprinting, which is synthesizing human organs and developing drugs from a patients’ own cells, will treat previously untreatable conditions and transform outcomes for patients. How can investors not be losing their minds over that type of advancement and bidding stocks up that are at the forefront of this?
There are also demographic trends favoring the biotech space. The greying of the population within the U.S. and other developed countries is driving up demand for healthcare services and treatments. And the incidence of chronic diseases such as cancer and neurodegenerative disorders is rising. There’s a lot of illness to treat, and a lot of medical conditions that can be monetized as biotech companies become more technologically advanced.
The Bottom Line
Healthcare as an industry is well-known for having resilient earnings – it has proven relatively defensive during economic downturns. At the industry level, one expects certain expenditures, like elective procedures, to be more sensitive to the economic cycle than those that are more defensive, like much of biotech. This makes healthcare an attractive sector for investors, and biotech stocks far more attractive.
I prefer ETFs like the SPDR S&P Biotech ETF (NYSEARCA:XBI) and iShares Biotechnology ETF (NASDAQ:IBB) for exposure rather than trying to choose individual winners, but if you feel strongly about a particular stock, have at it. I think there’s a big, broad-based move coming here.
On the date of publication, Michael Gayed did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
