Why healthcare, biotech may be top plays for 2024: BTIG

BTIG has released its 2024 Top Picks report, naming healthcare and biotech as two sectors well positioned from a technical perspective.

"On the sector front, we think Healthcare is poised to do well after a negative 2022 and essentially a flat 2023," BTIG Managing Director and Chief Market Technician Jonathan Krinsky wrote in a note to clients. "This has left a wide multi-year trading range that could be powerful should it breakout to the upside. We would also highlight biotech which is attempting to emerge from a long bear market that started nearly three years ago in early 2021."

Yahoo Finance Anchors Seana Smith and Madison Mills discuss BTIG's outlook.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

Video Transcript

SEANA SMITH: BTIG out with its top plays of 2024. The firm is saying that health care and biotech are the sectors to watch this year. Now we want to dig in to these picks and more. When it comes to some of these top picks, Mady, we know investors are doing their best to position their portfolio for some of the gains that we could see here ahead over the next 12 months on this call out from BTIG.

What caught my attention were those two particular things when it comes to health care and biotech. And here's why. We've talked so much this year about the tech sector, the Magnificent Seven, the lack of breadth that we saw in the market when we seen-- when we saw this massive run up, especially in the first half of the year, and then, of course, to end the fourth quarter.

But they're saying that, hey, even though health care underperformed back in 2022, didn't do a heck of a lot in 2023. They're making the case that health care is positioned for future gains heading into 2024 that we could see this breakout of the trading range that it has been stuck in.

And then also, biotech-- the BTIG saying that they do see biotech, potentially, emerging from this bear market that biotech has been in over the last three years. We have started to see more and more M&A activity pick up a bit there within the sector.

Anjalee Khemlani, our colleague there, reporting a bunch on some of those recent deals like Bristol-Myers Squibb, we have AstraZeneca, but then also just in terms of some of those individual names that they see, Legend Biotech corp and Stoke Therapeutics, not necessarily stocks that are household names or are really known to every investor out there.

So they are seeing some of those stocks that are maybe underneath the hood or maybe some of those lesser known plays as positioned-- at least they're making the case-- positioned well to really see a breakout this year.

MADISON MILLS: Yeah, we had an analyst on the evening show on Friday talking about how biotech is really positioned to have a great year heading into 2024 because of the amount of M&A activity that's expected, just like you said. So it'll be interesting to continue to see whether or not that comes to fruition.

I remember reporting on the Pfizer Biogen deal, and the Street didn't necessarily reward either of those names following that because of questions about the numbers in terms of the final deal. So that's a question we're going to have to contend with moving forward.

But going back to this BTIG top picks list, I was interested in what they had to say about the tech names. We've been talking a lot about the concentration into the Magnificent Seven, of course. Some of these cybersecurity firms getting a lot of attention heading into this year. I think about a ServiceNow, Palo Alto Networks, Okta, of course.

And this is because given the AI boom, we're continuing to see concerns for companies across the board about how they are going to deal with continued cybersecurity threats. And this is something where AI is able to push forward on not only threats for these firms, but also it's a tool for these firms to use to be able to increase their offerings.

We know that Microsoft, for example, offering some new products in terms of their cybersecurity services that they're able to provide. And we're seeing the Street rewarding that news every single time. And Palo Alto Networks, as you can see here, having a great year going up in the pre-market trade a little bit as well here. So it's going to be interesting to see whether or not those cybersecurity firms can continue to cut costs using AI tools, Seana.

SEANA SMITH: Exactly. And when it comes to some of those individual picks-- mentioning here Okta, CrowdStrike-- both have a buy rating on those. The fact that companies do need to spend on cybersecurity-- yes, they are cutting spending and many facets to try to better position their company in 2024. Certainly, a lot of uncertainty out there in terms of the Fed cutting, what exactly that timing is going to look like, the fact that we are seeing a global economic slowdown has maybe made companies rethink some of their spending plans as they look ahead to the new year.

But when it comes to what we are seeing companies continue to spend on and not pull much-- not pull back too much on, it is cybersecurity. That has been the theme there. And as we have seen from a number of analysts over the last several weeks, cybersecurity being some of those top plays for 2024.