On Jul 24, President Trump tweeted protectionist rhetoric once again, claiming that “Tariffs are the greatest!” He believes that they are an effective bargaining tool which can force countries to negotiate more equitable trade agreements. At this point, the Trump administration has imposed tariffs on Chinese imports worth $34 billion and more such levies are likely to follow.
Though markets are now choosing to focus on the ongoing earnings, they have been rattled by such moves in the past. It is unlikely that this trend will be disrupted in the near future. Investors, are, therefore, constantly on the lookout for investments which can provide both protection and profits in such a scenario.
Incidentally, biotech stocks are largely resilient to trade-related disruptions. Healthcare is a non-tradeable activity and its fortunes are dictated by the furious pace of advancements in this area. Given the current market backdrop, it makes good sense to invest in biotech stocks at this point.
Trump Maintains Protectionist Stance
Trump’s latest remarks are similar to tweets made earlier in March, when he claimed that “trade wars are good, and easy to win.” Apart from the tariffs imposed on $34 billion worth of Chinese goods, the Trump administration will also shortly impose tariffs on goods worth an additional $16 billion. Trump is also considering imposing tariffs on an additional $200 billion of Chinese imports.
And that’s not all. In an interview with CNBC on Jul 19, the President said that he may even impose tariffs on an additional $505 billion of Chinese imports. Meanwhile, Trump is slated to meet European Commission President Jean-Claude Juncker on Jul 25 to discuss trade issues. The focus will be on auto tariffs and it is unclear whether the EU will make an offer which will satisfy the U.S. President.
Biotechs a Safe Bet in this Scenario
On Jul 24, the Nasdaq Biotechnology Index (IBB) hit a fresh 52-week high. The index is up nearly 8% year to date and its components seem to be insulated from trade tensions. This is because healthcare is essentially a non-tradeable activity. The only threat to the sector at this point is a possible step-up in political rhetoric ahead of the midterm elections in November.
Most of this rhetoric will be focus on drug-pricing, an issue which caught the imagination of contestants in the last presidential elections. Since then, Trump has made occasional remarks on this topic. But concrete action on this front has been far from forthcoming.
The only factors that actually influence biotech stocks are the advances made in research and development. The sectors recently received impetus from encouraging trial results announced by Biogen BIIB. The biotech major has taken giant steps toward combating the dreaded Alzheimer's disease. More such developments will only attract greater investor attention to the biotech arena.
President Trump seems determined to persevere with his fiercely protectionist trade policy. Further, the Trump administration’s recent actions mean that it intends to act upon its rhetoric, which continues to flow uninterrupted.
In this scenario, it makes for a smart move to invest in biotech stocks, a domain which is largely insulated from trade tensions. We have narrowed our search to the following stocks based on a Zacks Rank #1 (Strong Buy) and other relevant metrics. You can see the complete list of today’s Zacks #1 Rank stocks here.
Illumina, Inc. ILMN is a life sciences company that provides tools and integrated systems for analysis of genetic variation and function.
Illumina’s expected earnings growth for the current year is 21.7%. The Zacks Consensus Estimate for the current year has improved by 0.2% over the last 30 days.
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.
Ultragenyx’s expected earnings growth for the current year is 29.4%. The Zacks Consensus Estimate for the current year has improved by 0.5% over the last 30 days.
Xenon Pharmaceuticals Inc. XENE is a clinical-stage biopharmaceutical company.
Xenon’s expected earnings growth for the current year is 17.3%. The Zacks Consensus Estimate for the current year has improved by 3.6% over the last 30 days.
Vanda Pharmaceuticals Inc. VNDA is a biopharmaceutical company focused on the development and commercialization of clinical-stage product candidates for central nervous system disorders
Vanda’s projected growth rate for the current year is more than 100%. The Zacks Consensus Estimate for the current year has improved by 11.1% over the last 60 days.
Pharming Group N.V. PHGUF develops innovative therapeutics for the treatment of genetic disorders, specialty products for surgical indications and nutritional products.
Pharming Group’s projected growth rate for the current year is more than 100%.The Zacks Consensus Estimate for the current year has improved by 6.3% over the last 30days.
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Illumina, Inc. (ILMN) : Free Stock Analysis Report
Biogen Inc. (BIIB) : Free Stock Analysis Report
Xenon Pharmaceuticals Inc. (XENE) : Free Stock Analysis Report
Vanda Pharmaceuticals Inc. (VNDA) : Free Stock Analysis Report
Ultragenyx Pharmaceutical Inc. (RARE) : Free Stock Analysis Report
Pharming Group NV (PHGUF) : Free Stock Analysis Report
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