Hello, Reader.
Wall Street has sold investors on the idea that they should start with “micro” analysis.
That’s the idea that they should make investment decisions by comparing things like price/earnings ratios, income statements, or other company details.
However, I do the opposite.
I look for big-picture trends that drive huge, multiyear moves in entire sectors of the market. In any asset… in any country… and in any direction.
And as the healthcare industry has entered the “Age of AI,” that’s exactly where my “macro” lens is pointed. The biotech sector, in particular, is offering a compelling and timely opportunity.
But investing in this high-risk sector can be a confusing and challenging endeavor.
So, in today’s Smart Money, I want to share the best way to profit from the current healthcare and AI “macro-trend.” In fact, I made this recommendation to my Fry’s Investment Report readers in January. I’ll also share another fascinating AI development in healthcare.
Let’s take a look…
A Biotech Gold Rush
AI could impart a game-changing efficiency to the drug-development process, and thereby shower pharmaceutical companies with a pixie dust of enormous prosperity.
Collectively, the pharmaceutical industry seems to be banking on the pixie dust scenario. For example, all 10 of the top positions in the iShares Biotechnology ETF (IBB) are actively integrating some facet of AI into their drug-development processes.
Meanwhile, many of the biggest pharmaceutical companies in the world are paying tens of billions of dollars to snap up promising, albeit profitless, biotech companies. You could call it a biotech gold rush.
The volume of M&A deals in the global healthcare sector surged about 22% last year, according to data provider Dealogic, even though M&A activity across all industries dropped about 23%.
Additionally, industry insiders expect M&A activity to gain additional momentum this year. According to a survey of 600 healthcare industry leaders by investment bank Jefferies, 68% of respondents expect the volume of deals in healthcare to rise in 2024.
Here’s a sampling of large-scale deals from the end of last year…
- Dec 26, 2023: Bristol-Myers Squibb Co. (BMY) offered $4.1 billion for RayzeBio Inc. (RYZB). The purchase price equals infinity times zero revenues.
- Dec. 22, 2023: Bristol-Myers Squibb bid $14 billion for Karuna Therapeutics Inc. (KRTX). The purchase price equals 2,373 times sales. 12-month income was negative $396 million.
- Dec. 14, 2023: Pfizer Inc. (PFE) closed the takeover of Seagen Inc. (SGEN) for $43 billion. The purchase price equals 19 times revenue. 12-month income was negative $740 million.
Presumably, the “crazy” prices major pharmaceutical companies are paying to acquire early-stage biotech companies aren’t crazy at all. The acquiring companies must believe that they can utilize AI to quickly convert the profitless potential of their biotech acquisitions into robust profitability.
I trust their collective judgement, and I believe that the pharmaceutical industry, in aggregate, will reap handsome rewards from the expansion of AI in healthcare. Specifically, I expect a growing number and variety of AI-derived therapies to enter clinical trials during the next couple of years.
However, as a non-expert of biotech stocks, I would not dare to pick specific winners and losers. Instead, I am picking the industry itself as a major winner of the nascent “AI era.”
To capitalize on this industry’s outsized potential in an AI-enabled world, I suggest taking a position in iShares Biotechnology ETF (IBB). Although this ETF holds a dizzying number of biotech stocks – 220 in all – its 10 largest positions represent more than half the fund.
Prospective buyers of IBB should be aware that biotech stocks usually carry rich valuations. The IBB portfolio is no exception.
So, to get my most update-to-date advice on iShares Biotechnology ETF – join me at Fry’s Investment Report today.
Plus, you’ll be just in time for the upcoming monthly May issue going live this Friday. If you’re already a Fry’s Investment Report member, click here to log in to our members-only website now.
Keep This in Mind… Literally
Healthcare companies are starting to understand that AI will be the technology of this century, especially as its creeping – or demanding – its way into the industry.
And I believe the next big gains will come from the intersection between AI and biotech.
And the only way to get access them is to move quickly…
Enter Elon Musk’s strange, new invention. It’s an AI device that futuristically fuses AI technology and healthcare. In fact, soon you could be wearing a device like this.
I believe that Musk is about to mint new millionaires with this new AI invention, and I found a way for you to go along for the ride.
Regards,
Eric Fry
P.S. In case you missed Jonathan Rose’s Masters in Trading Summit this morning,you still have time to attend the rebroadcast tonight at 8 p.m. Eastern time.
At the summit, Jonathan will introduce a new market indicator that will transform the way you approach your trading. Instead of avoiding volatility, his strategy will help you trade it. Click here to reserve your seat.
