Editor's note: For years, investors enjoyed a rising stock market. That bull run is over now... And picking winners is tougher than it used to be. Marc Gerstein, director of research at our corporate affiliate Chaikin Analytics, joins us to share a sector that doesn't need a tailwind from the Federal Reserve to thrive...
Biotech can be a godsend for investors in a "stock picker's market"...
Remember, today's market is a lot different than the market of the past 40 years. As my colleague and Chaikin Analytics founder Marc Chaikin explained in DailyWealth earlier this month...
Stocks will move up or down mainly based on company merit. If we misjudge anything, we can't count on the Federal Reserve's generosity to hand us good equity returns anyway.
In short, this isn't a forgiving time for stocks. Quality matters. That's why we're living in a stock picker's market.
At first, an industry focused so heavily on "growth" expectations, like biotech, might not seem like a smart approach when volatility is high.
But keep in mind... This space is full of revolutionary breakthroughs. And as such, these companies' stocks will move up or down based on their own merit. They don't need the Fed's support to thrive.
So in that way... it's exactly what we want.
I'll explain today how we can dive deeper into the biotech space – and some of the simplest ways to get on board. And as you'll see, it's an area worth exploring as we face this new stock picker's market.
Our future depends on biotech. These companies work on all sorts of progress...
Some biologics makers help fight conditions that were once untreatable. Meanwhile, others focus on "human augmentation" – developing drugs that combat the effects of aging.
Personalized medicine is a huge game changer, too...
Traditionally, drugmakers developed medications for broad populations. But now, thanks to technological advancements, they can focus their drugs on an individual's genetic makeup.
This is an ongoing trend in human innovation. It isn't slowing down anytime soon. And right now, in this chaotic stock market, the Chaikin Analytics Power Gauge tells us to look at biotech...
The Power Gauge currently rates 270 stocks in the industry as "bullish" or better. At the same time, 273 stocks rank "neutral," and only 53 have unfavorable grades today.
That's a lot of "bullish" from which to choose.
Even so, with all the volatility in the market right now, it's best to diversify your risk. So instead of focusing on specific companies, let's consider biotech exchange-traded funds ("ETFs")...
The biggest ETF in this industry is the iShares Biotechnology Fund (IBB). It has about $10 billion in assets under management ("AUM"). And today, its Power Gauge ranking is "very bullish."
Two tiny, niche ETFs also intrigued me as I looked closer at the biotech space. Both of them rank "very bullish" right now...
The Virtus LifeSci Biotech Products Fund (BBP) has an AUM of only around $17 million. And the Virtus LifeSci Biotech Clinical Trials Fund (BBC) has an AUM of roughly $24 million.
Investors shouldn't fear extremely small ETFs...
These ETFs aren't like "penny stocks." They're tradable. And smaller funds tend to pursue interesting, non-generic strategies...
For example, BBP invests only in commercial "product stage" companies whose lead drug has already received U.S. Food and Drug Administration approval. And as its full name implies, BBC specifically invests in companies whose lead drug is still undergoing clinical trials.
The overall market has been awful this year. And it's on yet another downswing right now.
But in a stock picker's market, you can always find opportunities if you know where to look. The key for us right now is to focus on companies that don't need the Fed's help to succeed.
And as we learned today, the biotech space fits that bill.
Good investing,
Marc Gerstein
Editor's note: If you're looking for a guide during these turbulent times, you're in luck...
Last night, Marc Chaikin – founder of Chaikin Analytics – joined forces with Joel Litman of Altimetry to share an urgent warning... and to reveal the "lifeline" they've discovered that can help you identify stocks set to soar in volatile times.
Marc and Joel shared the full details about these rare stocks... how to find them during this economic crisis... and even the names and tickers of key stocks you should buy (and avoid) right now. Watch the replay of this online discussion here.
Further Reading
"We aren't out of the inflationary woods yet," Joel Litman explains. The Fed's moves are bad for earnings – in the short term. But even with an earnings recession looming, the long-term picture for stocks may be brighter than you think... Read more here.
"Even when overall corporate earnings show weakness, that doesn't mean every part of the economy is struggling," Joel writes. The worst pain for stocks in the second quarter came from two specific sectors. And we're seeing pockets of opportunity elsewhere... Learn more here.
