Ride the Biotech Boom
10/05/2013 7:00 am EST
This sector has been one of the market's top performers for the last 18 months, and Nicholas Vardy talks about why he thinks there's more upside and how you can play it.
SPEAKER 1: Hi. I’m talking biotech with Nicholas Vardy. Hi, Nick, and thanks for coming by.
NICHOLAS: Thanks for having me.
SPEAKER 1: So you are recommending in your latest newsletter a Market Vectors Biotech ETF. Can you tell me a little bit about that?
NICHOLAS: Yes. The biotech industry has been one of the strongest performing sectors in the US market over the past 18 months and this is a way to play that. It has been really affected by a couple of fundamental factors. First, the rise of generic drugs or the expiration of patents or what they see of Glaxo is called the patent cliff, which is threatening the profits of the large pharmaceutical companies and also, the emergence of new drugs among the biotechnology companies. As a result, the biotechnology sector has really heated up because of potential takeovers, product pipelines, and really, an improving regulatory environment for biotech products in the sector.
SPEAKER 1: And there have been quite a few IPOs in that arena, right.
NICHOLAS: Yeah, there have been IPOs, and it is an IPO heavy space and when the market sentiment has improved, as it has recently, it is a very good opportunity for investors to lock in some pretty quick profits but also, the takeovers of larger companies of the smaller biotechs also offers a particularly good opportunity. There have been a couple of big takeovers recently and there you see stocks often pop 50%, 100%, or 150% virtually overnight.
SPEAKER 1: Yeah, nice premiums.
NICHOLAS: Yeah, nice premiums.
SPEAKER 1: Now, within the ETF, are they mostly really small-cap or micro-cap companies or is it more broad based?
NICHOLAS: You know, they tend to be more broad base. Actually, the components of the ETFs are surprisingly large. These are not really startup biotech companies. They tend to be actually relatively well established like Alexion or Celgene, companies like that, and in may senses or many times, the larger biotechs are also acquiring smaller biotechs themselves as they reach a certain size. Biotech has had about four big boom and bust runs since the sector launched. I believe we are sort of in a second and third inning of the fifth big run. We have already had a big run in the sector. Generally, evaluations start to get out of control on the top end but I think between now and the end of the current version of the biotech boom, I think we can see a good upside of at least 300% in an unleveraged ETF like the one I recommended.
SPEAKER 1: Wow, sure. And what is the symbol for the ETF?
NICHOLAS: It is the Market Vectors Biotech ETF, the ticker symbol for that is BBH.
SPEAKER 1: Wonderful. Thank you, Nick.
NICHOLAS: Thank you.
SPEAKER 1: And thanks for being with us at the MoneyShow.com video network.