Beaten-down biotech shares could see a monster relief rally after Election Day

Beaten-down biotech stocks could be set for a turnaround after Election Day, according to one strategist.

The Nasdaq Biotech ETF, the IBB, is down 21 percent year to date, and down just over 30 percent since hitting an all-time-high last July, but Stacey Gilbert of Susquehanna says a "relief rally" could be imminent.

"The big event, clearly, for the biotech space right now is the election," Gilbert said Friday on CNBC's "Power Lunch."

She noted that if Democratic nominee Hillary Clinton were to win the election and the Democrats were to sweep the House, it could be bad for the biotech space. However, with the likelihood of an all-Democratic house slim, she does expect to see a 3 to 5 percent rally for the group of stocks in the next few weeks.

"If you look at how the biotech sector has been under pressure for, let's say, the past month, you've also seen the probability that the Dems could sweep, increase during this period," Gilbert said. The likelihood of such an event is low, but would give way to a massive pullback — another 9 to 11 percent, Gilbert projects — "on that news alone."

Democratic nominee Hillary Clinton's remarks about drug pricing in late 2015, regarding Martin Shkreli's Turing Pharmaceuticals, and this year, related to drug manufacturer Mylan's price increase of its EpiPen product, both spurred lags in biotech stocks.

Eddy Elfenbein, editor of the Crossing Wall Street blog, said Friday on "Power Lunch" that Clinton's remarks about regulating drug prices have negatively impacted biotech names.

"It's been a really difficult year for the biotechs — the IBB still a third off its high from 2015, and clearly there's a lot of political risk; people are worried about what would happen with a Clinton victory," Elfenbein said.

"I think in the near term, until the election, there's still going to be a cloud over biotech. However, once we get past that, I think things look pretty good."

Elfenbein noted he likes the IBB "after Election Day" because he likes the valuations in biotech right now, and he predicts actually regulating drug pricing and passing legislation, as opposed to simply speaking about it during the campaign season, is much more difficult.

"Attacking the issue of pricing … it's a popular bumper sticker, but actually attacking the issue is much more complicated," he said.


Trades to Watch

Trader Bios


Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's “Closing Bell (M-F, 3PM-5PM ET).   In addition, he contributes to CNBCand CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

Read more