Six months ago, the drug industry was in a state of panic.
Donald Trump’s comments that the industry was “getting away with murder” unnerved not only the CEO’s, but investors too. But given recent news, it’s never been a more exciting time to buy.
Aside from the usual catalysts, including an aging baby boomer population, newly insured Americans, explosive mergers and acquisitions, heavy demand, and exciting new innovations, biotechs just got an extra push recently from President Donald Trump.
It’s why the iShares NASDAQ Biotech ETF (IBB) shot from a low of $290 to $323.
The SPDR S&P Biotech ETF (XBI) jumped from $70 to nearly $81.
Even Pro Shares Ultra NASDAQ Biotech (BIB) ran from a recent low of $47 to a high of $58.
According to Bloomberg:
“An executive order the Trump administration is preparing will contain industry-friendly policies instead of more aggressive proposals. The policies being considered include efforts to promote cooperative arrangements between drugmakers and insurers, speeding approval of new treatments, and finding ways to make other countries pay more for drugs. “It just sounds more and more likely that the focus is going to be on removing barriers to entry rather than a direct attack on pricing,” said Brian Skorney, an analyst at Robert W. Baird & Co. “That’s a pretty industry-friendly scenario if it does end up occurring."
Other reports agree that the executive order may just focus on the easing of regulations rather than lowering overall drug prices. That’s clearly seen as great news for the sector, which has been suffering for quite some time.
But that’s not all.
There’s always going to be a need for new and improved medical care. Our aging population means increased demand for more effective and safer treatments. Plus, innovation within the biotech sector has excited investors. The CRISPR technology allows scientists to snip DNA strands, which has dramatically increased the pace of advancements that could lead to treating and preventing various diseases. There has also been new advancements with Parkinson’s and Alzheimer’s diseases, marijuana research, and a potential new treatment for migraines.
“Then there is the fact that last year’s drop in biotech stocks led to significant reductions in companies’ valuations,” says Dave Gedeon, vice president and head of index research and development for Nasdaq Global Information Services, as quoted by The Wall Street Journal. “Many of these firms have continued to generate healthy earnings”, he says, so they “start to actually look very favorable from a valuation perspective.”
The list of positive catalysts goes on and on. But the message remains the same.
Biotech stocks will continue to be one of the hottest investment opportunities of the next decade. That’s why The Cheap Investor has been recommending several undervalued names in recent issues.