"Bull markets have been few and far between this summer; one of the few sectors that looks to have re-entered a bull trend is biotechnology," says international investing expert Nick Vardy.
In his Global Bull Market Alert, he explains, "The S&P Biotech ETF (ASE: XBI) looks to capitalize on this traditionally highly volatile and boom bust burdened sector." Here's his bullish assessment.
"Why the sudden merger and acquisitions frenzy in biotech? Put simply, 'Big Pharma' is cash-rich but innovation-poor.
"As patents on huge profit generators such as Pfizer's Lipitor expire, the traditional pharmaceutical industry is eager to refill its emptying drug pipelines.
"On the one hand, Big Pharma hopes giant acquisitions jump start pharmaceuticals' sputtering innovation machines. On the other hand, existing biotech blockbusters would also hedge against the coming collapse in earnings from drugs that are coming off patent.
"So why buy biotech now? Technically, biotech is one of the few sectors in the market that are in an uptrend, trading both above its 50-day and 200-day moving averages.
"And since hitting record highs about a month ago, the sector has sold off slightly, making it a good time to get in. Biotech also tends to be highly seasonal. That means many hedge funds will be picking up biotech stocks during this time of the year, only to sell them off in November.
"The best way to profit from the biotech bull is through the S&P Biotech ETF. Unlike some other market cap weighted biotech ETFs which heavily lean toward industry giants Genentech and Amgen, XBI holds about 25 of the top companies across the entire sector.
"Each company is equally weighted between 3-5% of the ETF. With an industry low expense ratio of 0.35%, it is also the bargain of the biotech ETF sector."
Steven Halpern's TheStockAdvisors.com offers a daily look at the latest market commentary and favorite stock picks and investment ideas from the nation's leading financial newsletter advisors.
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