Biotech Breakout: Stocks for Your Watchlist

Key Points

• The iShares Biotechnology ETF (IBB) has turned $140 resistance into support, positioning for a potential breakout above $150.
• Regeneron Pharmaceuticals, the top holding in IBB, is up nearly 30% YTD and has been successfully advancing its drug portfolio recently.
• REGN recently beat earnings expectations, making it a standout choice for investors seeking individual stock exposure.

After a prolonged consolidation and downtrend following the pandemic-driven surge, the biotechnology sector is readying for a potential breakout and shifting its narrative. Represented by the iShares Biotechnology ETF NASDAQ: IBB, the sector has turned a significant corner, with previous resistance levels becoming support, setting the stage for a potential momentum shift.

The sector is now trading nearly 30% above its 52-week low and has been consolidating above the $140 mark for several weeks.

If this consolidation continues, the built-up energy could propel the ETF past the $150 resistance level, potentially igniting a sustained move to the upside. For investors seeking exposure to the biotech industry, now may be a pivotal time to consider adding positions. 

So, let's take a closer look at the sector's current positioning and two go-to stocks to gain exposure to it. 

The Obvious Choice: The Sector ETF

The iShares Biotechnology ETF NASDAQ: IBB is an ideal broad play for investors seeking well-rounded exposure and diversification within the healthcare sector, predominantly geared toward the biotech industry. 

The ETF's top five holdings account for nearly 30% of its total weighting, providing significant exposure to some of the most well-known biotechnology and pharmaceutical companies, such as Gilead Sciences and Vertex Pharmaceuticals.

Within the healthcare sector, which makes up 86.5% of the ETF, biotechnology accounts for about 70% of the exposure, while healthcare equipment and supplies represent just over 9%. This concentration in biotech provides investors with a focused yet diversified approach to the industry's most prominent players.

Regarding technicals, IBB has recently turned its resistance at $140 into support. While the ETF has struggled to break above $150 in the short term, the longer it consolidates over $140, the stronger the potential for a significant breakout over $150. If this occurs, it could signal a major momentum shift to the upside for the sector.

For investors who prefer individual stocks instead of an ETF, here is one standout name in the biotech space, which has not only outperformed year-to-date and historically but is also the top-weighted name within the ETF.

The Stock Picker's Choice: Regeneron Pharmaceuticals

Regeneron Pharmaceuticals NASDAQ: REGN is the top holding in the IBB ETF, with an 8.91% weighting and a market cap of $125 billion. The company focuses on discovering, developing, and commercializing medicines to treat various diseases. In contrast to the broader biotech sector, REGN has had a stellar year, with its stock up nearly 30%.

Despite this strong performance, the stock has pulled back about 6% from its 52-week high, and its current low RSI of 45 indicates a possible buying opportunity for investors. Critical support is around $1,100, which aligns with its uptrend and the rising 50-day moving average.

The company continues to aggressively advance its portfolio of treatments for a wide range of diseases. Recently, a Phase 3 study of Dupixent, in partnership with Sanofi, achieved primary and secondary goals in treating chronic spontaneous urticaria in patients who had not previously used biologics. Additionally, on September 9, Regeneron announced five-year data from the EMPOWER-Lung 1 trial, demonstrating that Libtayo® monotherapy provided a durable survival benefit for patients with advanced non-small cell lung cancer compared to chemotherapy. These developments highlight REGN's ongoing success in expanding its therapeutic capabilities.

Regeneron has performed well on the earnings front, projecting 7.3% earnings growth for the full year. In its most recent August 1, 2024 report, the company posted $11.56 EPS, beating expectations of $8.93 by a wide margin. It also reported $3.55 billion in revenue, a 12.3% year-over-year increase. The company has received positive attention from analysts, boasting a consensus Moderate Buy rating based on 21 ratings.