I love the biotech sector.
I was a biology and chemistry major in college, and nearly became a doctor, so I have a true respect and appreciation for the field.
M&M Chief Investment Strategist Adam O’Dell
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, No. 1: the aging of Baby Boomers, and No. 2: 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. And it’s only logical to expect that this massively influential generation will continue to demand the best medical care money and technology can afford.
On the technology front, the traditional biotech sector is evolving… increasingly focusing 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. And at that price, we’ll be able to sequence upward 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 an investment conference presentation I gave in October 2019 (cough: well before the COVID-19 pandemic got everyone and their brother hopped up on biotech stocks).
There are several ways you can play this innovation trend…
Tactical Trading in the Biotech Sector
In late 2019, I shared with my Cycle 9 Alert readers how the biotech sector should enjoy a “seasonal tailwind” into early 2020:
“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.”
The sector was also showing market-beating momentum at the time, according to my proprietary indicators, so it was the perfect setup for the two- to three-month options trades we tactically make in Cycle 9.
What’s more, for my Green Zone readers I’ve been sharing a weekly hotlist of “poised-to-perform” stocks… ones that have triggered my Cycle 9 algorithm’s buy signal in the prior week.
And those hotlists have been turning up a number of biotech stocks, including ones within the more narrow field of genetics… Illumina Inc. (Nasdaq: ILMN), CRISPR Therapeutics AG (Nasdaq: CRSP), Intellia Therapeutics Inc. (Nasdaq: NTLA) and Editas Medicine Inc. (Nasdaq: EDIT) to name a few.
No doubt, you can make good money tactically trading the biotech sector. When the stocks move… they really move!
But 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…
An Easy Way to Invest in Genomics
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 focus on, and expect to benefit from, the 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 holdings are small-cap stocks, though 40% also come from medium- to large-cap companies.
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 40% 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.
Adam O’Dell
CMT, Chief Investment Strategist, Money & Markets
• Using his unique blend of technical and quantitative analysis, Mr. O’Dell’s sole focus is to find and bring you investment opportunities that return the maximum profit with minimum risk.
