As the market continues to set new post-Brexit records, readers (and market pundits) are wondering if they should chase the rally, wait for a correction or pursue stocks trading at reasonable prices despite the run up. While good quality stocks might be worth paying a steeper price for, corrections inevitably occur and usually give you a second chance to get in. (See our blog and issue on put selling to see how disciplined investors use options to buy stocks at a “discount.”)
A safer play though is to take advantage of the “rotational” corrections that occur within a record-setting market. We are experiencing one such rotational correction now. Case in point—biotech stocks. While the Dow and S&P 500 march to higher levels, there are several high-quality biotech stocks that have had substantial corrections (sell offs) from their all-time highs. These rotational markets give investors a chance to pick up bargains as one subsector corrects while other sectors soar. Moreover, there are other high-quality stocks within the healthcare sector besides biotech that have declined to attractive levels. Below is a small sampling of stocks that have corrected:
- Biogen (BIIB) One of the blue chip biotech stocks, Biogen crested at just under $500 per share. It declined to $240 a share—a 50 percent drop. It has since rallied to $280 a share. While Big Pharma and Biotech face potential regulatory and political pressures from a society that is railing against high drug prices, they still have excellent business prospects and should be able to weather any storm. The yearlong bear market in biotech has given investors a chance to pick up these stocks at significant discounts
- iShares Nasdaq Biotechnology ETF (IBB) If you are worried about the volatility and risk of being in one Biotech issue, the Biotech ETF might be the better choice for you. This ETF contains 188 Biotech stocks including Amgen, Biogen, Gilead and other high-quality Biotech stocks. It peaked at $400 a share and now stands at $240 per share. At a 40 percent discount from its high, it might be time to start accumulating a position. At In Sickness and Wealth, we just picked up a few shares for the personal portfolio.
- McKesson (MCK) and AmerisourceBergen (ABC) These two high quality drug distributors are key components of the pharmaceutical distribution landscape. (Cardinal Health is the third in a trilogy that controls a 90 percent market share of this industry.) Both sold off more than 30 percent from their all-time highs due to worries about generic drug pricing (they both profit handsomely form generic drugs) and concerns over customer defections to the competition. We are looking closely at adding one or both of these to the ISAW personal portfolio but are doing a bit more research before we pull the trigger.
- CVS (CVS) and Walgreen’s Boots Alliance (WBA) Both blue chip pharmacy retailers sold off 15-20 percent recently. We covered both of these in our January 2016 issue of In Sickness and Wealth. We mentioned that at any correction, these would be buys to hold for the long run.
In summary, while we are thrilled that many of the ISAW personal portfolio holdings are at or near all-time highs, several healthcare issues have come down to levels that long term investors can start to accumulate shares. As other healthcare opportunities arise, we will be sure to update our readers.