Key points
- The iShares Biotechnology ETF (IBB) is consolidating at the high end, suggesting a potential sector disruption.
- Despite modest year-to-date gains in the biotech sector, recent consolidation has tightened further, suggesting building energy for a higher breakout.
- The sector ETF’s top holdings are Amgen (AMGN), Vertex Pharmaceuticals (VRTX), and Gilead Sciences (GILD), which influence the direction and momentum of the sector.
- 5 stocks we like better than Gilead Sciences
The popular iShares Biotechnology ETF NASDAQ: IBB has formed a bullish consolidation at the top of its 52-week range, suggesting a significant sector-wide breakout.
The bullish pattern comes at a time when technology, and particularly semiconductor stocks, have continued to outperform the broader market, continuing the theme from 2023. However, as the first quarter of the year comes to an end, various other sectors have started to catch up. global market and the semiconductor industry.
Despite its modest 1% year-to-date gains, the biotech sector has spent several months consolidating in a tight range, potentially building energy and steam for a higher breakout. Given its structure and modest year-to-date earnings, this sector could be an attractive choice for growth-oriented investors looking to reallocate capital in the second quarter.
Let’s then look at the biotech sector ETF and the major players in the sector that could provide clues to the sector’s ability to grow.
Biotechnology ETF nears breakout
The iShares Nasdaq Biotechnology ETF is an exchange-traded fund that seeks to match the performance of the NASDAQ Biotechnology Index. This index includes NASDAQ-listed biotechnology and pharmaceutical companies that meet specific industry and eligibility criteria established by NASDAQ. The ETF seeks to replicate the price and return results of this index.
The biotech ETF has spent the year consolidating in a contracting range, with $133 as critical support and $140 as the all-important resistance and breakout level. Notably, even though the sector has lagged the overall market, it has maintained its position above rising SMAs, potentially accumulating energy for a breakout above $140. If the ETF can see an increase in volume when the price rises above $140 with authority, it could signal a larger time shift in momentum and the start of a new uptrend.
To better understand the sector ETF’s driving forces, let’s look at its three major holdings, which are instrumental in shaping its direction and overall success.
IBB’s top 3 holdings
AMGN is IBB’s largest holding, with 8.83% of the ETF’s shares and just under 2.7 million shares held.
Amgen, the multinational biopharmaceutical giant, has a market capitalization of $152 billion and a P/E ratio of 22.76. Year to date, the biopharmaceutical giant is down nearly 1.5%. The stock recently bounced off its 200-day SMA, and as the second quarter begins, it will be critical for the stock to reclaim this area to reverse its short-term downtrend.
Vertex is the second-highest weighted stock in the IBB ETF, with a weighting of 8.33%. VRTX has been one of the standout players in recent years, with shares rising more than 33% over the previous year and substantially outperforming the sector and its peers. The company has a market capitalization of $107 billion and a P/E ratio of 30.09.
Similar to the sector ETF, VRTX has been consolidating in a contractionary and bullish formation since the beginning of the year. The stock is trading between its 20-day and 50-day SMA, with the 50-day SMA coinciding with the breakout area. If VRTX can convincingly break out of its 50-day SMA around $423, it could trigger further momentum for the stock and the sector.
Gilead Sciences, the biopharmaceutical giant, is best known for pioneering treatments in HIV/AIDS, hepatitis C and other critical health areas. At 8.19%, GILD is the ETF’s third most weighted holding. Notably, GILD offers a dividend yield of 4.2% and expects earnings growth of 6.08% for the full year ahead.
While its stock’s performance pales in comparison to VRTX over the previous year, GILD stock has steadily consolidated for a year, with $72-$70 serving as critical support. Based on fifteen analyst ratings, GILD has a Hold rating and consensus price target, predicting an impressive upside of 16.53%.
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