Is the biotechnology sector ready for a change from laggard to leader?

Biotech stocks

Key points

  • The biotech sector has experienced significant growth after rebounding from uptrend support and is now consolidating near the major SMAs.
  • Increasing investor optimism and speculation in the short term may fuel growth, which may result in the sector changing from underperformer to leader.
  • Three industry-leading biotech stocks showing significant strength: Regeneron Pharmaceuticals (REGN), Moderna (MRNA), and Vertex Pharmaceuticals (VRTX).
  • 5 stocks we like better than Moderna

The biotechnology sector and its popular ETF, iShares Biotechnology ETF NASDAQ:IBB, lagged the overall market throughout the year and their shares were slightly red. However, the sector has seen significant gains in recent weeks after bouncing from uptrend support and now consolidating near several major simple moving averages (SMAs).

The recent growth in the biotech sector comes at a time of growing investor optimism and near-term speculation. The overall market and critical sectors such as technology and financials are trading at the top of their 52-week range after experiencing a significant sell-off just a few weeks ago.

So if the newfound support continues and market-wide growth continues, can the biotech sector move from underperformer to leader for the remainder of the year, or at least in the short term? If this happens, an investor armed with a bullish bias on biotech could benefit from gaining exposure to some of the largest ETF companies with noticeable strength in the recent and higher time frames.

So let’s take a closer look at the sector and three industry-leading biotech companies that are showing significant strength in the industry.

In focus: the biotechnology sector

iShares Nasdaq Biotechnology ETF is an exchange-traded fund that aims to replicate the price and earnings performance of the NASDAQ Biotechnology Index. This index includes biotechnology and pharmaceutical companies listed on NASDAQ that meet certain industry and eligibility criteria set by NASDAQ.

While the biotech ETF index is negative by almost 2% year over year, it has rebounded impressively in recent weeks. It is currently consolidating in a narrow range between converging moving averages. In the near term, if the ETF manages to break its weekly range, with $134 acting as resistance, a push towards resistance near $138 could represent another consolidation and target zone.

If there is a short-term breakout and further price stabilization, biotech stocks that have outperformed this year could continue to post the same gains. Let’s take a look at three companies that have shown relative strength in the sector over the year.

3 leading biotechnology companies

Regeneron Pharmaceuticals, Inc.

IBB’s second-largest holding is Regeneron NASDAQ: REGN, with an impressive share of 8.22%. The $105 billion pharmaceutical giant has become an industry leader this year, growing almost 10 percent. And with REGN just 3.4% away from its 52-week high, continued strength in the sector could propel shares to new highs. On the other hand, an increase in REGN may result in increased dynamics in the sector. Analysts are supportive of REGN, with a Moderate Buy rating from twenty analyst ratings and a price target of almost 2%.

Moderna limited liability company

Moderna shares NASDAQ:MRNA since the beginning of the year, they have significantly outperformed the sector and the market, by over 22%. From a technical analysis standpoint, the stock doesn’t appear to be slowing down. MRNA is in a strong uptrend and is trying to break out of short-term consolidation with clear upward momentum. While sentiment is leaning towards the bearish side, with significant short interest and recent insider selling, if the overall sector continues to rally, MRNA could continue to outperform given its recent momentum.

Vertex Pharmaceuticals, Inc.

Vertex pharmaceutical company NASDAQ: VRTX is the third largest ETF company in this sector, with a weighting of 8.06%, making it an influential industry stock. VRTX has slightly outperformed the sector, growing almost 3% this year. The company’s shares have maintained an impressive upward trend for several years in a row and are currently just 7% away from their 52-week high. After recently breaking short-term bullish consolidation, a move towards the high level of $430 should not be ruled out.

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