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Biotech: The Forgotten Bull Market

 November 20, 2012 02:29 PM

(R. Scott Raynovich) I've often joked that I should have dumped everything I own into gold and biotech during the financial crisis of 2008. But it's not a joke. Both have outperformed all of the major indices by a long shot.

In the case of gold, I think there is a broadening public understanding of its outperformance and its role to protect wealth in the face of every-increasing central-bank operations. In biotech, not so much. The average Joe on the street doesn't even seem to understand the basic biotech stocks or how much innovation is occurring in the industry.

Meanwhile, the broad biotech indices are up 60% since 2008 -- before the financial crisis.

Mainstream Wall St. -- and the media -- have largely missed the great biotech bull market. Rayno Report has given you plenty of ideas though. Including this juicy biotech shopping list from July of 2010!

[Related -Amgen, Inc. (NASDAQ:AMGN): What Will Drive Amgen This Year?]

First of all, let's take a look at the IBB, a broad biotech index ETF. For the record, I bought the IBB yesterday, adding to a collection of stocks I've owned for many years including Celgene (CELG) and Gilead (GILD). I bought the IBB because it has pulled back a bunch and it is on my list of things I've always wanted to own more of. Here is the chart:


Do you think that anybody that owns the IBB is complaining about the miserable decade in stocks? I didn't think so. If you are wondering what the IBB is, it's a large cap biotech index that holds many of the top biotech names such as Amgen (AMGN), Alexion (ALXN), Celgene (CELG), Biogen (BIIB), and Vertex (VRTX). It has also just undergone a big correction. So if you want more biotech exposure, this would be a place to get it.

[Related -Celgene Corporation (NASDAQ:CELG): Why Should You Invest In Celgene In 2014?]

Now let's look at the Biotech bull market compared with the S&P:


Are you kidding me? The IBB is up 60% in five years, as measured from January, 2008, before the market crash. The S&P 500, on the other hand, is still underwater -- or just about barely breakeven -- in that timeframe. That is impressive outperformance.

What's going on here? Yes, there is a bit of a momentum factor going on. Many large hedge funds have been "hiding" in biotech because with low macro-economic exposure, it has been sheltered from the global economic storm.

But there's more to it than that. Many of the individual stocks I called out here were identified as value picks in the last five years because of their relatively low price with respect to their growth rate.

My former site Investor Uprising published Guide to Biotech Investing, written by Rod Raynovich (my dad), in 2011, that told you everything about the bull market. We worked really hard on that report. We even told you what monoclonal antibodies were. It was amazing how little hype or interest there was when the report came out. People literally did not care.

That report outlined a lot of reasons for the bull market in biotech: More demand for R&D-based biotech drugs, less R&D spending and more acquisition by big pharma, more healthcare spending, and the fact that healthcare and drugs, are, in general, less susceptible to macroeconomic trends. But again, the world has just about ignored it! And still ignores it!

The bottom line: This bull market is still going strong. And I still like it. For a list of biotech stocks go see Rod Raynovich's regular biotech stock update. If you just want to cover the whole sector with an ETF, the iShares Nasdaq Biotechnology Index (IBB) or SPDR S&P Biotech (XBI) would have you covered.

(Disclosure: The author owns IBB and many individual biotech stocks included in the index, including Celgene and Gilead).



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