One big story that you may have heard about in the financial media is the biotech sector’s (see IBB) relative outperformance in a market starved for winners in 2014. Biotech’s booming, and adding more fuel to the fire is the record number of IPOs that hit the market recently. Conversely, this has lead to the expected contrarian bubble talk that almost always come with a sector that’s on fire.
One strategist who’s been on this trade, and is still taking the long side is Mark Lehmann of JMP Securities. In the attached clip, Lehmann explains why you need to stick with biotech, or take the plunge if you haven’t already.
Biotech’s big run has some likening it the tech bubble of 2000, but Lehmann points out some key differences. “You have fundamental news that’s really quite good. Back then (in 2000 for tech) you had a lot of hope, [biotech] has a lot of good fundamental news.”
Secondly, there’s consolidation in the market, which is a positive. “You’re seeing the Pfizer’s (PFE) and Merck’s (MRK) making acquisitions (in biotech) here because they see opportunity, and they don’t see it in their pipeline.”
Lastly, as mentioned earlier, the boom in IPO activity is another factor. Lehmann understands trepidation with the IPO froth, however. “Biotech is at lofty valuations, and there’s a lot of companies trying to access the public markets. It’s probably the busiest area of the IPO window. That should scare some people, but there’s still some terrific companies that are out there.”
One company Lehmman likes is Aratana Therapeutics (PETX), which focuses on the animal market. “It’s a market that’s recession-proof, people are still keep getting more pets,” and he notes that pet owners are using more therapies and treatments (even chemotherapy) for their pets.
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