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Should You Buy Beaten-Down Biotech Stocks & ETFs?

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After a brutal first-half, stocks have rebounded slightly this month as some investors believe that the sell-off could be reaching a bottom.

Per FT, hedge funds have started buying beaten-down biotech stocks, since they believe that ultra-cheap valuations could revive M&A activity in the space. Many big pharma companies are looking to boost their drug pipelines through acquisitions.

Biotech stocks were huge beneficiaries of the pandemic as many of these companies were developing new vaccines and treatments for Covid-19, leading to a surge in IPOs and venture capital investments.

After a brutal sell-off over the past year, some publicly traded biotech stocks have fallen so much that their market value is now below the amount of cash they have in the bank, per WSJ. M&A activity in the sector during the first half was at its lowest level in more than a decade.

The iShares Biotechnology ETF (IBB - Free Report) , the most popular product in the space, is market cap weighted. Amgen (AMGN - Free Report) , Vertex Pharmaceuticals (VRTX - Free Report) and Gilead Sciences (GILD - Free Report) are its top holdings.

The Invesco Nasdaq Biotechnology ETF (IBBQ - Free Report) tracks an index quite similar to IBB’s. It is much cheaper with an expense ratio of just 0.19%.

The SPDR S&P Biotech ETF (XBI - Free Report) tracks an equal weighted index and is tilted towards smaller companies.

The ARK Genomic Revolution ETF (ARKG - Free Report) is actively managed. Teladoc Health (TDOC - Free Report) and CRISPR Therapeutics (CRSP - Free Report) are among its top holdings.

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