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This is your big chance to buy biotech, traders say

After the week biotech stocks have had, some investors might feel like calling a doctor.

Even after a bounce-back on Friday, the popular iShares NASDAQ Biotech ETF is down more than five percent in the past five sessions. But with the ETF still nicely higher on the year, technical and fundamental traders alike say this is a dip to buy, not to run from.

"Let's put this in perspective. If you go back to the fall of 2011, the biotech index has been up four times since then. So is it unusual to see some profit-taking along the way? The answer is 'no,'" said Craig Johnson, senior technical research analyst with Piper Jaffray.

Diving into specific biotech charts, Johnson finds that the stocks that have fallen the most are the ones that had been "the most extended."

"That tells me that coming into the end of the quarter, this is some rebalancing of portfolios, some profit taking. And when you look at the longer-term chart, the primary trend is still up."


In fact, biotech stocks have been so strong that "you could see these stocks off another 10 percent from here, and still be in an uptrend," Johnson said. "We'd be buying these names on the pullback."

The fundamentals also remain supportive of biotech, says David Seaburg, head of equity sales trading with Cowen & Co.

"From a valuation perspective, this is not a bubble. I hear that being yelled out all the time. I mean, we are not in a biotech bubble, period," Seaburg said.

"If you look at the 2016 earnings growth rate, it's 16 percent for large-cap biotech names, and for the S&P it's 12.5 percent. Biotech deserves a premium multiple."

And a premium multiple Biotech has. The AMEX Biotechnology Index is trading at a forward price-to-earnings ratio of 53.1, versus the S&P 500's price-to-earnings ratio of 17, per FactSet.

According to Credit Suisse, biotech has beaten each of the S&P 500 sectors for the past four years, and is looking to repeat the feat in 2015.

Nonetheless, "I'm still a buyer of this group," said Seaburg.