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Investing in Microcap Biotech Stocks, Risks and Rewards
(Note: companies that
could be impacted by the content of this article are listed at the base of the
story [desktop version]. This article uses third-party references to provide a
bullish, bearish, and balanced point of view; sources are listed after the
Balanced section.)
The US stock markets have started the fourth quarter reflecting investors’ negative sentiment fueled by slowing US manufacturing activity and fears of a possible economic downturn. In recent days, stocks have started to rebound as investors hope the Federal Reserve will cut interest rates once more. The data shows that the biotechnology sector has been a good investment for most of this decade. Both NYSE Arca Biotechnology (BTK, 356%) and NASDAQ Biotechnology (NBI, +275%) indices have outperformed the S&P 500 (SP50, +178%) and Russell 3000 (RUA, +177%) indices over the last 10 years (as of October 2, 2019) (Exhibit 1).
Exhibit 1: Biotechnology Relative Price
Performance, 10 years (as of 10/2/2019)
Source: CapitalIQ
Looking back to the first three quarters (Q1, Q2, Q3) of 2019, bull markets have been dominating. However, biotechnology indices (BTK, -2.5% and NBI, +0.3%) have recently underperformed the benchmark indices (SP50, +15.2% and RUA 14.9%) year-to-date (YTD), (as of October 2, 2019) (Exhibit 2).
Exhibit 2: Biotechnology Relative Price
Performance, year-to-date (YTD, as of 10/2/2019)
Source: CapitalIQ