This year, biotech stocks have seen their best-ever start to a year since 2012. A solid merger-and-acquisition momentum has been instrumental in this rally. Still, valuation is cheaper for this segment as the Nasdaq Biotechnology Index, which is weighted by market value, is down nearly 20% from the record high set in 2015, per an article published on Wall Street Journal.
M&A Hot in 2019
The announcement of the mega-merger deal between Bristol-Myers (BMY - Free Report) and Celgene in the beginning of 2019 has set the space on fire. Also, Eli Lilly and Company (LLY - Free Report) announced that it will acquire Loxo Oncology for $8 billion to expand its oncology portfolio to precision medicines or targeted therapies.
The winning momentum for M&A started from December 2018, when Glaxo (GSK - Free Report) offered to acquire TESARO for almost $5.1 billion. With this deal, Glaxo’s objective was to get access to TESARO’s PARP inhibitor, Zejula, which is approved for ovarian cancer. There were other announcements like Roche’s (RHHBY - Free Report) acquisition of Spark Therapeutics for $4.8 billion and Merck’s (MRK - Free Report) acquisition of Immune Design.
Upbeat Clinical Trials & Listing for FDA Approvals
Biogen (BIIB - Free Report) has spread optimism into the broad healthcare sector following its Alzheimer’s treatment report. The biotech company decided to go ahead with the approval of aducanumab, a treatment for early Alzheimer’s diseases, after the drug met the primary endpoint of a Phase 3 Emerge study. If approved, Biogen’s drug would be the first to slow cognitive decline in Alzheimer’s patients, thus opening up huge opportunity for investors (read: Healthcare ETFs Win in October: Here's Why).
Bristol-Myers Squibb also recently announced that its immunotherapy combination of drugs showed strong results in a lung cancer trial. Hepion Pharmaceuticals also led the sector higher following data that showed potential for its CRV431 as a drug candidate for liver disease treatment (read: Biotech ETFs Surge on a Flurry of Positive News).
Low P/E Multiple Rampant in Sector
Many biotech shares can be availed at 12x forward earnings or less against the S&P 500’s 17x, per Wall Street Journal. Though low P/E does not indicate the future stock performance, cheaper valuation is always lucrative amid a spate of good news.
This is especially true given that Biomedical and Genetics belongs to the top-ranked Zacks industry (top 28%). And large-cap pharmaceuticals come from a top-ranked Zacks industry (top 29%).
ETFs in Focus
Below we highlight a few biotech ETFs that have considerably a low P/E in the sector and can benefit investors with solid gains (see all Health Care ETFs here).
SPDR S&P Biotech ETF (XBI - Free Report) – P/E 15.67x
iShares Genomics Immunology and Healthcare ETF (IDNA - Free Report) – P/E 17.08x
VanEck Vectors Biotech ETF (BBH - Free Report) – P/E 19.24x
Stocks in Focus
The below-mentioned biotech stocks have a low P/E and a decent P/E.
AbbVie Inc. (ABBV - Free Report) – P/E 9.16x, Zacks Rank #2 (Buy), Yield 5.38%
Bristol-Myers Squibb Company (BMY - Free Report) – P/E 13.32x, Zacks Rank #2, Yield 2.86%
Amgen Inc. (AMGN - Free Report) – P/E 15.09x, Zacks Rank #3, Yield 5.28%
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