Here's Why a Trump Administration Should Boost the Biotech Sector

The biotechnology sector has been one of the most-talked-about groups following Donald Trump's victory in the presidential election.

The sector is emerging from its recent bear market, which was in part sparked by comments made last year by former Senator, Secretary of State and Democratic presidential nominee Hillary Clinton, who was favored to beat Trump.

Last year, she tweeted about biotech and pharmaceutical companies for their "price-gouging" activities.

And Clinton tweeted this year about Mylan for its "outrageous" pricing of its EpiPen to treat asthma attacks and allergic reactions.

For the year ended June 30, the iShares Nasdaq Biotechnology Exchange-Traded Fund, one of the most widely followed and traded biotech ETFs, fell more than 30%, as shown in the chart below.

Chart courtesy of TradingView

However, the ETF began to regain some of its losses. For the year ended Oct. 31, the ETF regained just under 9% and was down 21.18%, as shown in the chart below.

Chart courtesy of TradingView

But now that Trump will assume office in January, the biotech sector doesn't have a lot of political risk.

Clinton's loss removed fears that the industry will be heavily regulated, and he is all about limiting regulations for many industries. Trump also didn't make the industry's price gouging a large issue in his campaign.

Moreover, biotechnology companies are seen by many as benefiting from an uptick in industry mergers and acquisitions, Fortune reported.

"A potential influx of foreign cash and improved stock valuations under the Trump administration would likely boost deal-making in the industry," according to the publication.

Trump aims to cut the business tax rate to 15% from 35%, which would mean less of a tax burden on large- and mega-capitalization biotech companies that are profitable.

In addition, he suggested a one-time tax discount owed by companies, which could repatriate cash held overseas.

Consequently, biotech stocks with large cash holdings overseas can bring cash back to the U.S., and they would only pay a 10% tax on it. This cash could then be used for share buyback programs, which would boost dividends, earnings, M&A and research and development.

The ETF has been rising and should see continued gains once Trump takes office.

As shown in the chart below, market participants loved the news of his victory, sending the stock up more than 15 points at one point last Wednesday.

The health care sector is poised to outperform, allowing biotechs and insurance companies to generate higher revenue.

Chart courtesy of TradingView

Biotech stocks got some breathing room after Trump's victory, and the sector's growth potential has increased.

Although his views may not be universally popular, the biotech and pharmaceutical industries are happy he was elected, making for a lot of upside potential in the biotech and pharmaceutical sectors.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

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