100 component stocks. 99 losers and 1 winner last week. That's how negative the breadth was for the week. I'm not surprised that a biotechnology stock ($DJUSBT) was the sole winner. While the coronavirus negatively impacted nearly all stocks last week, biotech names that offer potential solutions were being sought out. Many smaller biotech names saw tremendous gains. One, for example, was Novavax, Inc., a smaller company working on a vaccine for the coronavirus. They don't have one, mind you, but the sheer thought that they might be THE company to unveil a vaccination later this year had investors excited. Check out the chart:
In the midst of a wicked stock market decline, NVAX gained 107%. That's the definition of a pretty good week.
Getting back to the original point of my post, however, a similar story emerged with Regeneron Pharmaceuticals (REGN), which "only" advanced 10% for the week. It was the sole winner on the NASDAQ and is a much more established biotech company with a market capitalization of $49 billion.
In early February 2020, The U.S. Department of Health and Human Services' Office of the Assistant Secretary for Preparedness and Response (ASPR) announced an expansion of an existing collaboration with REGN to help develop therapeutics to treat COVID-19. So as fear grew last week regarding the virus, REGN benefited. The absolute and relative strength in REGN shares actually began a few months ago and I've included REGN on a short list of biotech names that I really like. Here's a weekly chart showing the relative strength improvement prior to last week's gain:
We're seeing both absolute and relative strength breakouts here and REGN is part of a biotech group that's also breaking out relative to the benchmark S&P 500:
REGN looks like a potential winner in a world with increasing coronavirus fears, but also began showing relative strength in an improving industry before the coronavirus outbreak. There are certainly no safe bets in the stock market, but I'm encouraged by the current relative strength here on both fronts.
I believe biotechs, after lagging the broader market for several years, are exhibiting the type of relative strength that we should recognize now, rather than after a big move. I would stick with relative strength winners and I've put together a list of 5 biotechs to consider for the balance of 2020 and beyond. If you'd like a copy and to be added to our free EB Digest newsletter, send a quick email to me at "firstname.lastname@example.org" with the title "Biotech Stocks". I'll be happy to get that out to you later this weekend or very early next week. If you're already a subscriber to the free newsletter or a member of EarningsBeats.com, there's no need to respond. We'll be sending this out to all of you as well.
Tom Bowley, Chief Market Strategist