Invest In A New Biotech Bull Market With XBI And IBB

2025-03-02 08:33:07 ET

Summary

• Biotech stocks are oversold. This near-term bottom might be the start of a long-term bull run.
• IBB and XBI offer different advantages. IBB can benefit from the flight to safety trade. XBI provides more leverage to the biotech turnaround trade.
• Falling interest rates, weak GDP growth, low inflation, and Fed rate cuts mean the macro environment is ripe for biotech.
• Firms going bust & the lack of IPOs have made the average biotech stronger. This should lead to a higher percentage of positive phase 2 & phase 3 readouts.
• M&A activity will likely increase due to big pharma's patent cliff and cash hoard, driving small cap biotech valuations higher.

Biotech Is Oversold… Again!

Ever since the biotech peak in February 2021, the rolling bear market has had a series of periods of extreme pain. There have been several bounces off bottoms in the past few years, but none have lasted long enough to start another bull market. I believe in capital cycles which means when too much capital chases a hot industry, it leads to low returns. When capital runs away from an industry, it’s left with only the strongest survivors. After a few years of outflows, opportunities to deploy capital in high returning projects increases....

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