Biotech Bubble: Is It Over? (IBB, BIB)
Rising index
IShares Trust - iShares Nasdaq Biotechnology ETF
Biotech that (supposedly) ended almost all life on Earth (February 2021).
It is not often that the Federal Reserve president says overloaded as an industry Janet Yellen has not done this once with the biotechnology industry, but twice in the past year. Yellen may not be an industry expert, but you would assume that he has some intelligent and connected people who are helping him with this assessment. Maybe he is right and maybe he is wrong, but let's see why he decided to send this warning to investors.
Rising index
There are several correlations between the dotcom bubble of the late 1990s and today's biotech run. On July 2, 2010, the Nasdaq Biotechnology Index traded at $ 790. 90. On June 30, 2015, it trades at $ 3,864. 68. In the last one year, there have been five improvements to the north of 6. 6% for the index, but in every case, the index recovered within a month. This has made it difficult for technical analysis for investors to understand what is happening. The answer is usually found in fundamental analysis anyway. The Nasdaq Biotechnology Index has risen in recent years for several reasons. One, low interest rates and easy credit have helped fuel the rally. Two, speculators in bull markets
Those at risk will invest in equities, knowing that they will have the most to gain. Three, there has been some income growth, but not across the board. Four, the Affordable Care Act - Obamacare - has helped fuel biotech firms. Five, Big Pharma has called for new products, which some biotech companies distribute. Has been successful in Six, the FDA has implemented new policies to accelerate approval of breakthrough drugs. Seven, good practice of quality M&A activity has subsequently played a large role; According to PwC, in the first quarter of 2015, 35 deals were completed in the pharmaceutical and life sciences industry, representing a deal value of $ 166. 3 billion is a value only total deal as compared to 2014 Now let us take a look at the recession of logic. What is known now is that the Nasdaq Biotechnology Index is trading at 53 times earnings, By comparison, the S&P 500 is trading at 20 times earnings according to Bloomberg. An argument can also be made that many biotech companies lack revenue growth to justify their profits. Without that revenue, many early stage companies are more similar to technology companies than biotech companies. Additionally, there has been an increase in recently failed clinical trials. But the biggest danger is the possibility of access to easy money for biotech firms. If this environment becomes a reality, then rallies in speculative-heavy industries will come to an end. Bull & Bhai Investments Bull and Bear Exchange Traded Funds Many early stage companies are more similar to technology companies than biotechnology companies. Additionally, there has been an increase in recently failed clinical trials. But the biggest danger is the possibility of access to easy money for biotech firms. If this environment becomes a reality, then rallies in speculative-heavy industries will come to an end. Bull & Bhai Investments Bull and Bear Exchange Traded Funds Many early stage companies are more similar to technology companies than biotechnology companies. Additionally, there has been an increase in recently failed clinical trials. But the biggest danger is the possibility of access to easy money for biotech firms. If this environment becomes a reality, then rallies in speculative-heavy industries will come to an end. Bull & Bhai Investments Bull and Bear Exchange Traded Funds
(ETFs) below that track biotech stocks (all numbers are as of July 1, 2015)
IShares Trust - iShares Nasdaq Biotechnology ETF
(IBB) Objective: Tracks the investment results of an index made up of biotechnology and pharmaceutical equities listed on Nasdaq. Its largest holding is large-cap shares, which offer greater protection than investing in (relatively speaking) individual biotech shares. Total Assets: $ 904 Billion Average Daily Trading Volume: 1. 5 Million Expenditure: 0. 48%
Dividend Yield: 0. 12% 1-Year Performance: 43. 60% 3- Month Performance: 7. 45% ProShares Ultra Nasdaq Biotechnology
(
BIB
)
Objective: twice track daily performance of Nasdaq Biotechnology Index.
Total Assets: $ 902 61 million
Average Daily Trading Volume: 681, 524
Expenditure: 0. 95%
Dividend Yield: N / A1 1-Year Performance: 94. 79% 3-Month Performance: 14. 11% ProShares Ultrashort Nasdaq Biotech
(
Bis
)
Objective: Inverse daily performance of the Nasdaq Biotechnology Index tracks twice.
Total assets: $ 125 84 million
Average Daily Trading Volume: 208,970
Expenditure: 0. 95%
Dividend Yield: N / A1 1-Year Performance: -59 66% 3-Month Performance: -16 75% Direction Daily S&P Biotech Bayer 3X ETF
(
LABD)
Objective: three times the inverse of the performance of the S&P biotechnology selection industry index
Total assets: $ 7 86 million
Average Daily Trading Volume: 45, 108
Expenditure: 0. 95%
Dividend Yield: N / A
1-Year, 3-Month Performance: N / A1 -Month Performance: -18 21% Bottom Line Is the Biotech Rally Over? Not yet, but the end is coming quickly. Like most other strong industry rallies, weak hands will have to move from the bottom up, before the future biotech grows again. Large-cap stocks will have more flexibility, where you will almost always get real revenue.
Dan Moskowitz does not own shares in IBB, BIB, BIS or LABD, but in the near future he may start a position on smaller parties.
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