Why the biotech sector might be worth a second look

Tue 05 Jul 22, 12:37pm (AEST)
Biotech - Close up of examining of test sample under the microscope in laboratory.
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Key Points

  • Biotech stocks, like tech and growth sectors, were sold off heavily at the start of 2022
  • Names like Telix, Imugene and CSL have managed to bounce off lows and stabilise a lot faster than the broader market

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. 

2022-07-05 12 32 18-Window
CSL and Imugene (Source: TradingView, Annotations by Market Index)
2022-07-05 12 34 11-Window
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."

Written By

Kerry Sun

Finance Writer & Social Media

Kerry holds a Bachelor of Commerce from Monash University. He is an avid swing trader, focused on technical set ups and breakouts. Outside of writing and trading, Kerry is a big UFC fan, loves poker and training Muay Thai. Connect via LinkedIn or email.

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