Why the biotech sector might be worth a second look

Speculative biotech companies were among the most hard hit when growth stocks began to sell off in early 2022.

Several ASX-listed biotech names around the $100-500m market cap level such as Mesoblast (ASX: MSB) and PYC Therapeutics (ASX: PYC) experienced max drawdowns of more than -35%.

Taking a more global perspective, the iShares Biotechnology ETF was down -32% year-to-date and -40% from its August all-time highs.

Interestingly, while the broader S&P/ASX 200 sold off heavily in June, most mid-large cap biotech stocks held up relatively well.

Names like Telix Pharmaceuticals (ASX: TLX), Imugene (ASX: IMU) and Polynovo (ASX: PNV) have all managed to bounce off lows and stabilise a lot faster than the broader market (which is still on thin ice).

Even market darling CSL (ASX: CSL) has been trading sideways for 6 months, and in this kind of market, that’s a good thing. 

CSL and Imugene (Source: TradingView, Annotations by Market Index)

Imugene and Polynovo (Source: TradingView, Annotations by Market Index)

Food for thought

Some interesting quotes from US trader, Mark Minervini - as investors wait for the market to bottom and search for the next trending stock/sector.

"I think it's time to start entertaining the idea that small and mid-cap stocks may be leaders in the next cycle. The mega cap past leaders will bounce from beaten down levels, but for the most part they are morphing into stalwarts."

"If you wait until the popular indexes bottom you could be missing key leaders at proper buy points. Leaders lead! By the time you make a bullish "market" case or for specific groups, the best names have already emerged."