Cheers in the Lab as Biotechs Post Biggest Gains of Young Year

The biggest cheers may have been on trading floors last year, but this year they are taking place in labs.

While macro-forces like the Fed’s stimulus programs and technology innovation like social networking and mobile advertising dominated trading and market gains last year, 2014 may be the year of the biotechnology breakthrough.

These stocks are dominating the StockTwits trending bar every morning this year. And for good reason… seven of the 10 biggest equity winners this year  so far (mkt cap> $300mln) are part of this industry.

While the S&P 500 has languished, the SPDR S&P Biotechnology ETF $XBI is up 15 percent in 2014. (Close the books if you caught that.)

On the surface, it’s a sector that traditionally doesn’t trade alongside the market. Sure… a rush to high beta stocks will sometimes give a lift to this risky industry, but for the most part, these companies trade on two things: success at drug trials and acquisitions. There’s been a little of both this year.

Intercept $ICPT is up 500 percent already on the year after a trial was so successful that doctors made the rare move of ending the study early. The drug from the company is a treatment for silent liver disease, so called NASH, which effects 3-5 percent of Americans and until now, did not have a viable treatment, according to the National Institute of Health.

Traders were bidding up Galectin $GALT today in sympathy with Intercept as it makes a similar class of drugs.

This is a tough sector to trade if your familiarity with common biotechnology terminology is low. If you feel up to it though, dive into the various biotech streams on StockTwits to try and sniff out that next 10-bagger.

Just be careful trying to trade these stocks after they make their big pop because that’s when they can get very volatile and you often see profit taking set in by long-term holders.

Otherwise there is always the $XBI as mentioned above and the iShares Nasdaq Biotechnology ETF $IBB as ways to play this trend this year without having to dive in and do the heavy homework on individual stocks.

If you want to stop playing the macro game, biotech offers complete diversification from our macro-obsessed world. Plus it’s a feel-good game too.

 


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