Biotech in a Bull Market, Not a Bubble: StockTwits
NEW YORK (TheStreet) -- The biotech sector is due for a bounce, say investors on StockTwits.com. Instead of setting up for continued contraction Monday, many cashtaggers on the leading investing social network maintained that last week's sell-off created buying opportunities. And they refuted arguments that biotech valuations had inflated to bubble proportions and were now, rightly, losing hot air.
The Nasdaq Biotechnology ETF (IBB) is down 7% since April 1. But sentiment on the ETF is still 50% bullish, according to StockTwits' analytics, despite the dismal performance. ProShares UltraShort Nasdaq Biotech ETF (BIS), for comparison, has 56% bearish sentiment.
The negative opinion on the short biotech ETF is attention-grabbing, given recent gains. The BIS ETF, which aims to return double the loss of the Nasdaq's biotech holdings, is up 14%-plus since April 1. Typically, asset gains increase bullish sentiment.
Some investors believe upcoming medical conferences will change the tide for the sector. They argue that news announced at the American Association for Cancer Research's annual meeting (held April 5 to 9) and at the International Liver Congress (held April 9 to 13 in London) will attract investors back to beaten-down names.
$IBB w/b affected positively by 4 medical confer in last twit. AmerAsscCancerResearch 4/5, 4/9 IntlLiverConfer- hepC, LiverFibrosis $ICPT -- bo czernyk (@searchlight) Apr. 6 at 11:01 PMSome investors also argue that valuations are not inflated, as many assume. Their view is supported by analysts such as Credit Suisse's Ravi Mehrotra who believe the valuation of larger biotech names, such as Biogen (BIIB) is justified. Biogen, which had a market cap of $68 billion at Friday's closing price, trades at 20.5 times 2015 earnings. For comparison, Johnson & Johnson (JNJ) an established drug company with a $278 billion market cap that is expected to grow much more slowly, trades at nearly 16 times expected 2015 earnings.
My cheap biotech screen has gone from a little over 30 names to now in the mid forties, that's the good thing about the biotech carnage $IBB -- Daniel Ward (@swingtrades99) Apr. 4 at 11:57 PMOf course, some argue that the measure of cheapness has, itself, become warped. They say the five-year bull market mantra of "buy the dip, sell the rip" is no longer applicable. The market is transforming into a stock-pickers' paradise in which names will once again move on fundamental price-to-earnings ratios -- not because everything is going up. And that's bad news for many names in the biotech sector that have yet to gain final FDA approval for medications in human trials.
$BIS Shorting Biotech. looks to have plenty of continuation left in the tank http://stks.co/q0BFH -- Jason Strauss (@JXMFinancial) Apr. 6 at 08:41 PMBut most cashtaggers said Monday would be a day for seller's remorse. At the time of publication, the author held no positions in any of the stocks mentioned. This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.
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