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 and Celgene CELG in the beginning of 2019 has set the space on fire. Also, Eli Lilly and Company LLY 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 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 acquisition of Spark Therapeutics for $4.8 billion and Merck’s MRK acquisition of Immune Design. Upbeat Clinical Trials & Listing for FDA Approvals
BIIB 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 – P/E 15.67x iShares Genomics Immunology and Healthcare ETF IDNA – P/E 17.08x VanEck Vectors Biotech ETF BBH – 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 – P/E 9.16x, Zacks Rank #2 (Buy), Yield 5.38% Bristol-Myers Squibb Company BMY – P/E 13.32x, Zacks Rank #2, Yield 2.86% Amgen Inc. ( AMGN Quick Quote AMGN - Free Report) – P/E 15.09x, Zacks Rank #3, Yield 5.28% Want key ETF info delivered straight to your inbox?
Zacks’ free Fund Newsletter will brief you on top news and analysis, as well as top-performing ETFs, each week.
Get it free >>