The theme of the week is back-tests, biotech’s and Pharma.
There are numerous back tests of previous pivots taking shape. The market was under pressure last week and names started to cool off with many of them coming back into support areas
Some common ones are SHOP DUOL NET WDAY MELI DASH ADBE ESTC MEDP DKNG. However, I still fell many growth names are too extended right now to build positions in.
This note I will be focusing on Biotech’s and Pharma names.
Biotech, Pharma and Healthcare is in an interesting position, both technically and fundamentally.
Lets start with a high level view of some ETFs that look constructive, then drill down into names and end with a spotlight idea.
IHE- Ishares Trust US Pharma ETF- Trying to break long DTL on weekly chart
PPH - Vaneck ETF Pharma ETF trying to breakout and put in weekly all time high close.
XBI - S&P Biotech ETF is trying to clear massive resistance after breaking DTL
XLV - S&P Healthcare ETF is also trying to move up and out of multiyear long base
Biotech, Pharma and Healthcare groups look poised for a possible run here. They have lagged the general market for some time and have several catalysts that are starting to play out.
Lets now drill into some specific names
PHARMA NAMES
LLY NVO JNJ NVS PFE ZTS GSK
These are my top 6 liquid names in the Pharma Space. I like how the ETF is looking and I love the theme and price action of these names.
LLY and NVO with massive obesity, diabetes and Alzheimer’s TAM are making strong price moves. NVO broke out of ascending base (more at end of note- spotlight) and trying to hold the pivot. LLY is trying to move up and out after a breakout shakeout. PFE, JNJ ZTS put in upside reversals off key levels while GSK broke out and its marching higher.
BIOTECH
AMGN VRTX CYTK BBIO ACAD LBPH
First, I want to draw your attention to the difference in holdings for the two mainstream biotech ETFs
IBB has heavy weighting in VRTX AMGN REGN GILD. These are more established companies with solid pipelines and histories of earnings and sales. While they are still speculative, not nearly as much as XBI
XBI has weightings more concentrated in smaller names and is more diversified. This will lead to different results over the long run.
AMGN and VRTX are the liquid leaders in this group and the largest holdings in IBB. CYTK is acting extremely strong and is the largest holding in XBI. BBIO and ACAD with beautiful back tests while LBPH looks like its ready to blast off after a strong power move on heavy volume a couple days ago.
SPOTLIGHT
Novo Nordisk might be the strongest candidate for a CANSLIM leader at the moment (it is also my largest position by far)
They define themselves as a focused healthcare company. They focus on diabetes, obesity, rare diseases and other serious chronic diseases.
Their obesity care unit grew sales 174% in the first nine months of 2023 and is what I am most excited about. Not only the personal healthcare opportunities for those who need help managing their weight, but also the total addressable market this opportunity represents for investors.
They are growing their obesity care unit at a breathtaking rate right now. I do not know how sustainable that is, but it is something to take note of as this problem has a HUGE addressable market.
The results of their efforts are starting to take shape in their reports. They reported strong growth in topline sales for the first 9 months of 2023.
I really like to see that acceleration in sales and is something that can lead to large price gains in stock prices over the long run if it can continue.
Moving onto price action of the stock.
Price just broke out of a 17 week ascending base on heavy volume
The daily chart shows the breakout of the ascending base on heavy volume into new highs.
As long as price can hold above the breakout pivot, I think this stock is a buy. Personally, I would love to see a shakeout below the pivot to accumulate more shares.
I am preparing a more in-depth report on NVO and other companies at the moment. I just wanted to share this with you so you can also start your own research process if you were unaware of this possible thematic opportunity.
Conl:
I like how the groups of Biotech, Pharma and Healthcare are setting up. I think they have room to run. I like the thematic stories and fundamentals of the leaders in each group. This almost seems to easy.
Investing never is though.
In a decade I think we will look back with the clarity of hindsight and easily distil how obvious this move was.
We will easily see how big the addressable markets were, and how advancements in technology met demographics and illness in the most harmonious manner.
I think we will also marvel at the road it took. Markets usually do the most obvious thing in the most unobvious manner. I do not think this road will be smooth.
Maybe Jesse Livermore can help prepare us:
"The Reason is that a man may see straight and clearly and yet become impatient or doubtful when the market takes its time about doing as he figured it must do" - Jesse Livermore
"This is about all I have learned - to study general conditions, to take a position and stick to it, I can wait without a twinge of impatience. I can see a setback without being shaken, knowing that it is only temporary" - Jesse Livermore
Well, I think this is a great idea. This is a ride I want to be on. I will try to hold on without being impatient, doubtful, or shaken.
Easier said then done.
—NS