Biotech’s rally has excited investors and led one technician to reaffirm the sector as one that’s worth to buy.
Jonathan Krinsky, chief market technician at MKM Partners, took a look at the biotech sector rally and sees a continue to the industry’s rise.
“You have to remember that biotech’s one of the top five performing industry groups since the Brexit low,” Krinsky said Monday on CNBC’s “Power Lunch.” “But despite that, it’s still one of the worst five industry groups over the last year. So we think the catch-up trade that’s been happening over the last two months is probably set to continue.”
On a chart of the Nasdaq biotech ETF IBB, Krinsky points out that the sector has recovered since a huge drop late last year. From February to late July, the IBB spent six months “building this base” with a low of $240 and a high of $290. However, the ETF broke through the $290 resistance in late July, leaving Krinsky to project that IBB could hit $340 and that it could even continue rallying from there.
“What was resistance now becomes support,” said Krinsky. “As long as IBB is above $290, I think you’ve got to be a buyer here.”
The IBB jumped 2 percent on Monday, boosted by news that Pfizer is set to acquire cancer drug company Medivation for $14 billion. While investors ponder what other big pharma deals could come next, Stifel Nicolaus portfolio manager Chad Morganlander also agrees that the biotech sector is worth a look.
“It tells you that there are some actual strategic opportunities for large-cap mega health-care stocks,” he said. “The biotech industry we believe, overall, is cheap. We believe that they are consistently grown, consistently profitable, they don’t have a lot of debt.”
Morganlander sees big biotech stocks like Amgen as a good bet, giving the pharma company a price target of about $220 per share. Other mega-cap biotech stocks could follow, according to Morganlander, especially with the election on the way.
“We also think that there was a tremendous of headline risk going into the election,” he said. “After the election, we believe that that’s going to subside, and you’re going to see this whole industry start to rally again.”
The IBB closed at $296 on Monday, a level it last reached in early August.
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