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Is the Biotech Downturn a Buying Opportunity?

By Brian Orelli, PhD and Keith Speights - Mar 24, 2021 at 8:30AM

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At this point, investors are best off with a pick-and-choose strategy.

The biotech sector has taken a substantial tumble with shares of the iShares Nasdaq Biotechnology ETF (IBB -1.60%) down about 12% from all-time highs set in February. In this video from Motley Fool Live, recorded on March 8, Fool.com contributors Brian Orelli and Keith Speights discuss whether this is a buying opportunity and what to look for when trying to find opportunities in this market.

Brian Orelli: Do you think this is a good buying opportunity for biotechs -- this downturn?

Keith Speights: To some degree, yeah. Obviously not for every stock because some stocks aren't worth buying, period. But I think for the most promising stocks, this downturn could present a buying opportunity for aggressive investors. For example, you mentioned Novavax (NVAX -9.46%), its stock was down significantly last week. In my view, Novavax still has just as much potential as it did from a business standpoint, just as much potential as it did over a week ago. It's just a lot cheaper now. So if you look at companies that you really think their business prospects continue to be very good, then buying shares or adding to positions when the stocks drop isn't a bad idea. Other companies might not be such a good idea.

Orelli: Yeah. Although we've dropped quite a bit from the highs which were set on Feb. 8, we're basically at the level we started the year. So although it's been a rough couple of weeks for biotech investors, we're not really like back-up-the-truck cheap levels. I don't feel like we're still much higher than we were sitting at last year. I think you really have to look at your companies and value them based on where are their catalysts. So if they don't have any near-term catalysts, I think that's going to make for a much bumpier ride. If you're a long term investors are willing to hold through multiple catalysts, then having short-term catalysts isn't that important. But if you are a little more worried about the general state of the market, I think looking for biotechs that have short-term catalysts, either clinical trial results or FDA approvals that will get you a better valuation assuming those binary events are positive.

Speights: That's a good point, Brian, because sometimes the biotech stocks can perform very, very well even during massive market meltdowns because of those new-term catalysts like you were talking about.

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Stocks Mentioned

Novavax, Inc. Stock Quote
Novavax, Inc.
NVAX
$46.54 (-9.46%) $-4.86
iShares Trust - iShares Nasdaq Biotechnology ETF Stock Quote
iShares Trust - iShares Nasdaq Biotechnology ETF
IBB
$114.58 (-1.60%) $-1.86

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