Biotech ETFs Show Resiliency

The Biotech HOLDRS Trust, or BBH, takes a more focused approach with only 12 holdings. Genentech (DNA Quote), Affymetrix (AFFX Quote) and Gilead Sciences (GILD Quote) account for more than 80% this fund's weight. "It's not as cheap as IBB," Yockey said.

Immune to the Storm

Each of these three ETFs has trended downward in recent weeks. "The market decline has destroyed value in all industries," said Hamed Khorsand, an analyst with BWS Financial. "As of late, the market has been in a liquidation mode."

Despite this slump, Khorsand believes that there are areas within biotech that are better positioned to fend off hard times. "Large-cap biotech companies are more immune to these macroeconomic trends," he said. "It's the small-cap companies that are more dependent on access to capital."

Prior cycles also lead Khorsand to the conclusion that there is plenty of upside potential in the sector going forward. "When there is softness in the economy, one area that usually holds up well is biotech," he said. "I think that is likely to be the case again over the next year or so."

Seeing Value

Investors who are looking to break down these ETFs to trade on the individual names or are just scanning the biotech sector for candidates with upside potential have plenty of options. One name that Porter likes in particular is Techne (TECH Quote). In August, the biological products company reported fourth-quarter results that included a 20.7% rise in diluted earnings per share on a 16% spike in net sales over the same quarter a year ago. "The stock has a nice trend going since June of last year," he said.

The markets' distress has left some biotech stocks trading at prices that Khorsand views as prime buying opportunities. Three stocks that he likes right now all are among the top 15 holdings of XBI. Cephalon (CEPH Quote), Biogen Idec (BIIB Quote) and Gilead are at the top of his list. "There is a lot of value in these three companies right now," he said. "They are all revenue generating, profitable names."