Invest in these four companies that will lead the biotech sector higher in 2016. Their deeply oversold valuations represent amazing long-term entry points as each of these four stocks own products that are going to dominate their niches. Now is the time to buy as the biotech sector starts to rally.
After spending over six months deep in the doldrums, and in the deepest and longest bear market since the financial crisis, the biotech sector has exploded to the upside over the past half-dozen trading sessions. The sector, after falling over 40% from its highs in late July to its trough in the second week of February, has roared back as of late. As of this Thursday, the sector had gained nearly 15% since March 30th. One of the biggest underperformers in the market has become one of the top gaining areas of the market so far early in the second quarter.
Even the Treasury Department’s derailing of the over $150 billion mega-merger between giants Pfizer (NYSE: PFE) and Allergan (NYSE: AGN) could not kill the improved sentiment on this segment of the market. In fact, the sector rallied some six percent Wednesday when the two drug giants officially announced they were ending their proposed tie up. So, why is biotech rallying and why could the rise be sustainable? There are several things suddenly working in the industry’s favor.
First and foremost, the sector broached deeply oversold levels. The large cap portion of biotech was selling at their lowest valuations since 2011 before this recent surge. Most of the larger names sold at a discount to the overall market multiple; traditionally, they sell at a premium. This anomaly could not last as the sector is one of the few in the market that can consistently still deliver earnings and revenue growth right now despite an anemic global demand picture.
In addition, some of the stocks of smaller cap names I have profiled on these pages before like Dynavax Technologies (Nasdaq: DVAX), BioDelivery Sciences (Nasdaq: BDSI) and Merrimack Pharmaceuticals (Nasdaq: MACK) were so disconnected from their underlying value that something had to give. I am not surprised these names have rebounded considerably of late.
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