U.S. Markets closed

5 Biotech Stocks Defying the Medicare-for-All Scare

Swarup Gupta
While Incyte's (INCY) earnings and revenues beat estimates in Q1, Jakafi sales fall short of the same.

Even as benchmarks touch new highs on the back of strong earnings numbers, one sector continues to languish in the red. Despite this year’s searing market rally, the Health Care Select Sector SPDR (XLV) is down 0.2% year to date. The sector has fallen prey to the vagaries of the 2020 race for U.S. presidency.

Democractic presidential hopeful Bernie Sanders’ latest announcement has only worsened matters for healthcare. The Medicare-for-All plan he unveiled last week, supported by most other Democrats in the running for the White House, is likely to lead to further losses for healthcare stocks, feel some analysts.

And yet, biotech stocks have managed to defy the broader sector’s downtrend. This is especially true for smaller players that are coveted targets for larger companies. Further, companies with innovative products will continue to command a price premium. This is why it makes sense to bet on biotech stocks which have notched up strong gains year to date.

Medicare-for All Spooks Sector Incumbents

Last week, Bernie Sanders addressed a widely watched town hall event hosted by Fox News. The degree to which he connected with the audience has led political analysts to believe that he is the leading Democratic presidential hopeful. And growing support for Medicare-for-All has sent shivers down the spines of large healthcare players.

Not only will Medicare-for-All significantly restrict the role of private insurers, it could also weigh on the healthcare space at large. The sector’s stocks suffered heavily last week, especially on Apr 17. The trigger for Wednesday’s losses was a dire warning issued about Medicare-for-All by UnitedHealth UNH CEO David Wichmann. 

Sector watchers feel this debate could soon stray into the hotly debated area of pharma pricing. In 2018, the subject was widely covered by presidential tweets. Big pharma responded by initiating a price freeze even resulting in some cuts. The situation is likely to repeat itself in 2020 with Medicare for All taking center stage and healthcare figuring strongly on the agenda of many candidates.

Biotech Defies Sector Slump, Prospects Bright

Political wrangles have pushed healthcare stocks into the red year to date. But biotech stocks are defying the wider trend, notching up strong gains over the same period. The market-weighted iShares Nasdaq Biotechnology ETF (IBB) is up 8% year to date, lagging the S&P 500’s 17% increase over the same period.

But the equal-weighted SPDR S&P Biotech ETF (XBI) has risen 21.1% year to date. Its ascent has been powered by smaller companies which are lucrative targets for larger sector players. And despite the fact that they are natural political targets, they continue to retain significant pricing power. A large section of biotech firms have the ability to introduce innovative products and unique treatments, assuring their long-term potential.

Our Choices

The healthcare sector is once again part of a larger political storm. Matters have worsened with the Medicare-for-All proposal capturing the imagination of a significant section of voters. But biotech stocks are defying the wider trend and continue to notch up strong gains.

Investing in biotech stocks which have posted strong gains year to date looks lucrative. We have narrowed our search to the following stocks based on a good Zacks Rank and other relevant metrics.

Incyte Corporation INCY is a biopharmaceutical company focused on the discovery, development and commercialization of proprietary therapeutics.

Incyte’s expected earnings growth for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved 10.2% over the past 30 days. The stock has gained 15.8% year to date. The stock has a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aduro Biotech, Inc. ADRO is a development-stage biopharmaceutical company focused on the discovery, development and commercialization of therapies for challenging diseases.

Aduro Biotech has a Zacks Rank #2 (Buy). The company’s expected earnings growth for the current year is 41.5%.  The Zacks Consensus Estimate for the current year has improved 12.6% over the past 30 days. The stock has gained 27.3% year to date.

Ultragenyx Pharmaceutical Inc. RARE is focused on the identification, acquisition, development and commercialization of novel products for the treatment of rare and ultra-rare diseases, with a focus on serious, debilitating genetic diseases.

Ultragenyx carries a Zacks Rank #2. The company has expected earnings growth of 10% for the current year. The Zacks Consensus Estimate for the current year has improved 2.1% over the past 30 days. The stock has gained 50.3% year to date.

MeiraGTx Holdings plc MGTX focuses on operating as a holding company for MeiraGTx Limited, which operates as a clinical-stage gene therapy company.

MeiraGTx has a Zacks Rank #2. The company has expected earnings growth of 20.3% for the current year. The Zacks Consensus Estimate for the current year has improved 19.6% over the past 30 days. The stock has gained 87% year to date.

Coherus BioSciences, Inc. CHRS is a biologics platform company developing biosimilar therapeutics.

Coherus BioSciences has a Zacks Rank #2. The company has expected earnings growth of 55.3% for the current year. The Zacks Consensus Estimate for the current year has improved 44.3% over the past 30 days. The stock has gained 43.3% year to date.

Will you retire a millionaire?

One out of every six people retires a multimillionaire. Get smart tips you can do today to become one of them in a new Special Report, “7 Things You Can Do Now to Retire a Multimillionaire.”

Click to get it free >>


Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
 
Incyte Corporation (INCY) : Free Stock Analysis Report
 
Coherus BioSciences, Inc. (CHRS) : Free Stock Analysis Report
 
Aduro Biotech, Inc. (ADRO) : Free Stock Analysis Report
 
Ultragenyx Pharmaceutical Inc. (RARE) : Free Stock Analysis Report
 
UnitedHealth Group Incorporated (UNH) : Free Stock Analysis Report
 
MeiraGTx Holdings PLC (MGTX) : Free Stock Analysis Report
 
To read this article on Zacks.com click here.
 
Zacks Investment Research