The stock market is like a bustling stage, and on the first trading day of the year, one performer stole the show while others struggled to keep up.
The iShares Biotechnology ETF (NASDAQ: IBB) emerged as a standout star, closing the first day of the year with a solid upswing of nearly 4%. In stark contrast, the broader market saw red, marking a challenging day for many sectors.
This impressive performance and start to the year by the biotech sector and its ETF, IBB, wasn't just a stroke of luck. The upswing was a continuation of a higher time-frame uptrend and a notable turnaround for the sector.
The recent surge in the biotech sector has coincided with heightened investor optimism and increased speculation. This trend emerged over the previous months.
So, if the consistent upward movement in the biotech sector persists as the year commences, might there be potential for a transformation from trailing behind the overall market in 2023 to taking the lead in 2024?
The iShares Biotechnology ETF (IBB)
The iShares Nasdaq Biotechnology ETF is an exchange-traded fund that aims to match the performance of the NASDAQ Biotechnology Index. This index includes biotechnology and pharmaceutical companies listed on NASDAQ that meet specific industry and eligibility criteria set by NASDAQ. The ETF seeks to replicate the price and yield outcomes of this index.
Despite the sector's impressive three-month rally, with the IBB up almost 16% in that period, resistance has held firm around the $138 mark. This level acts as a critical, multi-year resistance going forward. If the ETF can push above it with authority, continued and sustained upward momentum might be the likely outcome.
However, as the upward trendline suggests, the IBB might be due for a pullback or a correction over time by consolidation near the resistance level to regain steam.
To understand the driving forces behind the sector and the Biotechnology ETF (IBB), let's take a closer look at the ETF and focus on its key holdings, which are instrumental in shaping its success.
Amgen (NASDAQ: AMGN)
AMGN is the IBB’s top holding, weighing 8.83% in the ETF and just under 2.7 million shares held in the ETF.
Amgen, the multinational biopharmaceutical giant, currently has a market capitalization of $160 billion and a P/E ratio of 21.37. Not only does the stock boast an impressive return to shareholders in the previous months, but it also offers a 2.83% dividend yield.
Shares of the biopharma titan have surged almost 16% over the previous three months and notably just took out last year’s high of $296.67.
Vertex Pharmaceuticals (NASDAQ: VRTX)
Vertex is the second highest weighted stock in the IBB ETF, with an 8.33% weighting. VRTX has been one of the standout performers in recent years, with shares soaring over 43% over the previous year and substantially outperforming the sector and its competitors. The company has a market capitalization of $105 billion and a P/E ratio of 30.81.
Vertex is a favorite among analysts, with the stock featured on the Most-Upgraded Stocks list. Based on eighteen analyst ratings, the stock has a Moderate Buy rating, with twelve Buy ratings and six Hold ratings.
Gilead Sciences (NASDAQ: GILD)
Gilead Sciences, the biopharmaceutical giant, is best known for pioneering treatments in HIV/AIDS, hepatitis C, and other critical health areas. GILD is the third highest weighted holding of the ETF, weighing 8.19%.
While its share performance pales compared to VRTX over the previous year, shares of GILD have been in a steady bullish consolidation for one year. The stock has consolidated on a higher time frame, with $75 acting as support and $85 - $87 acting as resistance. A move above resistance might spark further upside not only for the stock but also for the overall sector and ETF.
