This column is my opinion and expresses my views. Those views can change at a moments notice when the market changes. I am not right all the time and I do not expect to be. I disclose all my positions clearly listed on the page, and I do not trade my account on the stocks spoken of in this column unless fully disclosed. If that does not work for you stop reading and close the page. Do not bother me or harass me.
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Biotech Stocks Will Be Best Performing Sector In 2018 – Prediction #4
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
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.
6. Inflation will increase to 3 percent in 2018 on a year-over-year basis on the Consumer Price Index.
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
Mott Capital Management, LLC is a registered investment adviser. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Upon request, the advisor will provide a list of all recommendations made during the past twelve months. Past performance is not indicative of future.
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Tags: #biotech #stocks #predictions #2018
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