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Biotech Stocks Will Be Best Performing Sector In 2018 – Prediction #4
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After nearly three years of being one of the worst performing group, 2018 will be the year that the Biotech stocks come roaring back to life. Since July of 2015, the NASDAQ Biotech ETF is down by 13.3 percent, while the iShares Biotech ETF ($XBI) is up just about 2 percent. During that same time, the S&P 500 is up nearly 30 percent, while Financial stocks ($XLF) are up almost 40 percent, and Technology stocks are up almost 55 percent. Slow growth and repatriation will persuade the most significant pharmaceuticals and Biotech’s to take the plunge and start adding assets to their portfolios to start rebuilding their pipelines, helping to ignite a bid in the group and causing multiple expansion. Bringing us to Prediction #4 for 2018: Biotech Stocks Will Be The Best Performing Sector in 2018.
In an article I had written for Investopedia I noted, Johnson & Johnson ($JNJ), Amgen ($AMGN), Gilead Sciences ($GILD), Pfizer ($PFE), and Merck ($MRK) could have nearly $150 billion of cash parked overseas. At a repatriation tax rate of 15.5 percent on liquid assets, that means $127 billion could come flowing back to the US, and that could be put to work to buying smaller biotech companies helping to rebuild pipelines, spurring the next round of growth.
In total the top 11 Biotech and Pharmaceuticals have about $193 billion in cash parked overseas, and that means $163 billion in cash could be coming back over to the US in 2018, and that means more M&A.
Deal Volume Down
According to Capital IQ, PWC analysis the total number of deals in the sector by total volume through the third quarter of 2017 are at the lowest levels since tracking began in the fourth quarter of 2015 at 65, down by nearly 38 percent since peaking at 104 during the first quarter of 2016.
Source: Global pharma and life sciences deals insights: Q3 2017
Opportunities Are Plenty
Below is a list of Biotech companies with a market cap greater than $1 billion, and projected sales growth of 20 percent or more for 2019.
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Data compiled using Ycharts
A Spark
Repatriation could lead to M&A in the Biotech group in 2018, and that could help a struggling group finally get moving in the right direction again.
10 Predictions For 2018:
10. Tesla’s Stock Price Could Nearly Double In 2018
9. US Real GDP Will Grow at 4% or More In 2018 – 10 Predictions
8. Why The FANG’s Will Lead Stocks Higher In 2018
7. Oil will rise to roughly $75 per barrel in 2018, a rise of just over 30 percent.
5. 10-Year Yields rise to 3 percent.
The purpose of the 10 predictions is for fun and to think about the year to come. It helps to organize thoughts and think about potential themes and trends that could develop. See our 10 predictions for 2017 and judge for yourself how we did.
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Michael Kramer and the clients of Mott Capital own shares of $ACAD $ALKS $CELG
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Tags: #biotech #stocks #predictions #2018
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This report contains independent commentary to be used for informational and educational purposes only. Michael Kramer is a member and investment adviser representative with Mott Capital Management. Mr. Kramer is not affiliated with this company and does not serve on the board of any related company that issued this stock. All opinions and analyses presented by Michael Kramer in this analysis or market report are solely Michael Kramer’s views. Readers should not treat any opinion, viewpoint, or prediction expressed by Michael Kramer as a specific solicitation or recommendation to buy or sell a particular security or follow a particular strategy. Michael Kramer’s analyses are based upon information and independent research that he considers reliable, but neither Michael Kramer nor Mott Capital Management guarantees its completeness or accuracy, and it should not be relied upon as such. Michael Kramer is not under any obligation to update or correct any information presented in his analyses. Mr. Kramer’s statements, guidance, and opinions are subject to change without notice. Past performance is not indicative of future results. Neither Michael Kramer nor Mott Capital Management guarantees any specific outcome or profit. You should be aware of the real risk of loss in following any strategy or investment commentary presented in this analysis. Strategies or investments discussed may fluctuate in price or value. Investments or strategies mentioned in this analysis may not be suitable for you. This material does not consider your particular investment objectives, financial situation, or needs and is not intended as a recommendation appropriate for you. You must make an independent decision regarding investments or strategies in this analysis. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Before acting on information in this analysis, you should consider whether it is suitable for your circumstances and strongly consider seeking advice from your own financial or investment adviser to determine the suitability of any investment.
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