Biotechnology stocks: Still overvalued
The S&P Biotechnology Select Industry Index has plummeted 21% since July 17 but still has more than tripled over the past 5 years. "Biotech stocks are expensive and highly speculative," says Solaris' Ghriskey. That's because many of the medical treatments pursued by biotech companies don't pan out.
"The price of pharmaceuticals remains in the cross hairs of politicians," Ghriskey adds. Several of them have complained about the high prices that biotech and other drug companies are charging for their products. "For the long term, biotech stocks are a great place to be, but in an election year they seem to be a bipartisan punching bag, so there could be headline risk," says BMO's Ablin.
Biotech stocks could be among the first to fall if the overall market tumbles, Ghriskey says. "Given a stock market somewhat constrained by slowing global growth, (coming) increases in interest rates and other issues, I would be cautious of high-valuation names in what remains a very high valuation group," he says. Ghriskey and Ablin say shares of smaller biotech companies are the most dangerous. If you are interested in investing in biotech shares for the long term, wait until after the presidential election, Ablin says.