I love the biotech sector.
I was a biology and chemistry major in college, and almost became a doctor, so I have a true respect and appreciation for the field.
From an investor’s perspective, I think the biotech sector is in prime position to capitalize on two lucrative trends that will persist for years to come. Those are the aging of Baby Boomers, and the rapidly increasing advancements in DNA sequencing, gene therapies, and the like.
We already know that 10,000 Baby Boomers will turn 65 every day for the next 10 years. It’s only logical to expect this massively influential generation will continue to demand the best medical care money and technology can afford.
On that technology front, the traditional biotech sector is evolving and increasing focus on new genomic approaches to treating, curing, even preventing, old ailments.
It’s been estimated that within just two years, the cost of sequencing the DNA of a full human genome will be under $100. At that price, we’ll be able to sequence upwards of 170 million human genomes, providing a treasure trove of data upon which biotech researchers will develop and refine innovative health care solutions.
It’s these long-term trends that make me so excited to see what the biotech sector will come up with, in the decade ahead, and why I was motivated to recommend a strategic over-allocation to the sector during my Irrational Economic Summit presentation last October.
A Strategic, Tactical Recommendation
Today I’m recommending a long-term strategic allocation to the biotech sector, but I currently like the sector on a short-term tactical basis, too.
Recall how I told you last December that “Now Is the Time to Buy Biotech.”
To recap, the analysis I shared then was of my signature quant-style nature…
I showed how the SPDR S&P500 Biotech ETF (NYSE: XBI) has historically outperformed all other sector and industry group ETFs during the three-month seasonal period beginning in mid-December, giving biotech investors an average return of 8.1% versus the market’s average 4.3% gain in the same time.
I also shared how my weekly Green Zone Stocks hotlists had been turning up a growing number of individual biotech stocks, triggering new three-month buy signals all across the sector. Since those buy signals are based on my Cycle 9 Alert’s trend-and-momentum algorithm, it means the stocks are displaying market-beating momentum and are poised to outperform over the next three months.
I also revealed how I had put my own Cycle 9 readers into an options play on XBI. We’re still in that position today, with a nice little profit so far and I expect we’ll stay in it into March, at least, to take advantage of both the sector’s strong seasonality (mid-December through mid-March) and the three-month “sweet spot” of momentum that my system is picking up on in the real-time price action data.
No doubt, you can make good money tactically trading the biotech sector. When the stocks move… they really move!
Consider how some of the top-performing biotech stocks from recent Green Zone Stocks hotlists have already shot 45% higher (Arvinas, Nasdaq: ARVN), 74% higher (Molecular Templates, Nasdaq: MTEM), and even 170% higher (Kodiak Sciences, Nasdaq: KOD)!
Note: I shared those stocks with you in my December 10 “Buy Biotech Now” piece, and you can gain access to future hotlist buy signals here.
Just the Fund for You
I realize individual stock-picking and active trading isn’t for everyone. And fortunately, the growing availability of sector-targeting ETFs make it easy for a passive, “strategic” investor to allocate to the space.
If that sounds like you, I recommend taking a close look at the Ark Genomic Revolution ETF (BATS: ARKG).
The fund actively invests in biotech companies that are focused on, and expected to benefit from, the so-called genomic revolution — everything from gene therapy and molecular diagnostics, to bioinformatics and next-generation oncology protocols.
As is typical of the biotech space, a majority of the fund’s individual stock holdings are small-cap stocks, though 40% also come from medium- to large-cap companies.
The five largest holdings of the fund include: Illumina (Nasdaq: ILMN), CRISPR Therapeutics (Nasdaq: CRSP), InVitae (NYSE: NVTA), Intellia Therapeutics (Nasdaq: NTLA) and Editas Medicine (Nasdaq: EDIT).
I should note that my Green Zone Stocks hotlists have identified four of these five stocks as new buys in recent weeks, among other biotech names.
All told, either a strategic or tactical allocation to the biotech sector can be volatile, but I truly think it’s the place to be for the decade ahead. And if there’s one slice of the biotech sector I want to put my money on, it’s the genomic revolution.
I recommend adding some exposure to the ARK Genomic Revolution ETF (BATS: ARKG) today. The fund has already gained 25% since my original mid-October recommendation, but I think there are far bigger profits to be had in this sector in the months and years ahead.