Two Potential Key Drivers For Biotech Stocks

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This year the SPDR S&P Biotech ETF (XBI) has advanced 49% to its highest levels in over two years, though some have speculated the bullish run isn’t done yet. Erin Gibbs, a portfolio manager with S&P Global, stated, “the average stock in the XBI is trading at 21 percent below its [average] analyst target price. The average stock is rated a buy.”

She also reported this past Friday, which biotech valutions “are just starting to recover”, while the S&P 500 forward price-earnings ratio broadly “has remained at the top of a 3-year range.”

Meanwhile, biotech valuations “are just starting to recover,” she wrote to CNBC on Friday, while the forward price-earnings ratio for the S&P 500 as a whole “has remained at the top of a 3-year range.”

This means that biotech valuations could potentially have more upside potential than the valuations across the broad market. Gibbs also said, “biotech is expected to have earnings contract -3.3 percent in 2017 and then recover to 6.6 percent [earnings per share] growth in 2018.”

“Not exactly stellar growth, and well below the broader market. But at least the stocks are relatively cheaper even with the recent appreciation,” she continued.

As a whole, Gibbs states because of low valuations and high price targets, biotech stocks have “room to appreciate further,” despite if they are not “a strong buy.”
Though, BK Asset Management’s Boris Schlossberg is wary on the biotech space in the short term.

“At this point, some pause is kind of due,” he stated. ” The XBI chart is “coming up against a very long-term resistance” at the ETF’s mid-2015 intraday high of $91.11, Schlossberg reported. In its previous close, the XBI dropped to close at $88.32.

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