How to Profit from Biotech Buyout Bait
More all-time highs are in the books for the major averages as a temporary fix to the government shutdown come through and earnings season starts off hot…
But the real action is in happening in biotech stocks. A couple of big buyouts paved the way for some impressive biotech gains to kick off the new trading week.
First up, Celgene Corp. (NADSAQ:CELG) plunked down $9 billion to acquire Juno Therapeutics (NASDAQ:JUNO) and get ahold of its promising line of CAR-T cancer treatments. The announcement juiced JUNO shares by more than 25% on the day, bringing its five day gains to an eye-popping 75%.
If that’s not enough excitement for you, French drug maker Sanofi SA (NYSE:SNY) announced it’s buying Bioverativ (NASDAQ:BIVV) for $11.6 billion. The deal pushed BIVV shares up more than 60% by the closing bell.
Make no mistake, the biotech sector is heating up in 2018. Merger madness is taking hold, pushing shares of many promising companies in the sector to new highs.
The SPDR S&P Biotech ETF (NYSE:XBI) – a good measure of small-cap biotech stocks – gained almost 6% yesterday. Meanwhile, the large-cap iShares Nasdaq Biotechnology ETF (NASDAQ:IBB) jumped almost 4%. The biotech buying frenzy helped lift the Nasdaq Composite to a gain of almost 1% in Monday’s session.
We’re just three full weeks into 2018 and the market’s premier small-cap biotech ETF is already up more than 10%. IBB’s not far behind with a gain of more than 8%.
These incredible rallies should come as no surprise to you. Not two weeks ago, we alerted you to biotech’s impressive outperformance on a rare down day for the major averages. In a sea of red, small-cap biotech stocks stood strong. XBI finished the day higher by more than 1.25% on Jan. 11, while the Nasdaq Composite was stuck in the red. XBI’s comeback rally that began to materialize just before Christmas was once again threatening to break out to new highs.
Fast forward to this week and you can see why it’s so important to take note of the stocks or sectors that are outperforming everything else — especially when the broad market is experiencing a little weakness. Now we’re enjoying our pick of countless bullish biotech breakouts to propel our trading portfolio higher this month.
I scan the biggest gainers on the market every day so I can get a feel for the sectors and industry trends that are sometimes masked by the major averages. As you can probably guess, biotech stocks are stealing the show so far this year. I’ve seen biotech “lotto plays” and buyout bait popping 50%, 60%, or even 70% every single day.
Exploding biotech names are nothing new to this bull market. You might recall the headline swirling around Endocyte Inc. (NASDAQ:ECYT) as it posted one-day gains of more than 150% during the fourth quarter. The triple-digit move was sparked by a licensing agreement for the firm’s phase 3 prostate cancer drug. Now, these moves are becoming almost commonplace.
Some of our newest plays are getting plenty of attention thanks to the biotech buying spree. Array Biopharma (NASDAQ:ARRY) is an instant winner for you thanks to yesterday’s 18% pop. And your core holding XBI continues to rake in the gains.
With a frenzy of M&A activity expected to continue in the sector, we have a great opportunity to pull in more big winners like ARRY in the weeks and months ahead.