+0.14%
-0.38%
This week’s featured ETF is the iShares Nasdaq Biotechnology (IBB). The ETF tracks the NASDAQ Biotechnology index. The top holdings include Alexion Pharmaceuticals and Amgen. Here is a complete list of the top holdings. The top ten holdings make up about 50% of the fund, so the concentration is not too bad.
The trailing P/E multiple is about 16 and price to sales about 3.5 and price to cash flow only about 12. This is pretty reasonable pricing. The sector is not a source for today’s yield-oriented investor since the yield is only 0.34%
Investor Take
For our investment programs I would consider this ETF if exposure to the group seemed attractive. Biotech has changed quite a bit in the last decade. Instead of a basket of super-growth “story stocks” we are now seeing established drug companies with real revenues. It adds complexity to determining the right valuation.
While no sector has escaped the Europe-related selling of the last two weeks, IBB has held up the best. This article by Rod Raynovich helps to explain this and also adds more to the fundamental story.
Trader Take
Putting aside the metrics for investors, let us turn to the tale of the tape. Take a look at the chart for IBB:
Felix (our trading model) likes new highs and dips, so this is a good choice for traders.
Model Output
The results of the model as of 05/16/12 are below.
Please keep in mind that these are choices for an active trading program. The model rates the best holding for the next three weeks, but this is a question we ask every day! Felix may come up with even better choices tomorrow, and we will adjust our trading accordingly.
The ratings have two parts — the strength and the penalty box. The strength rating shows how we expect the sector to perform over the next three weeks compared to the historical norm. A rating of 100 is one standard deviation better than average. The penalty box represents our confidence in the forecast. Many astute traders just step away from a confusing market. Felix does the same thing. When we have little confidence in our ratings, the sector goes into the Penalty Box.
The brief summary is that Felix still has little confidence in the ratings. The trading program is back in the market with two positions, but the choices are very conservative. The inverse ETFs have moved up significantly. If these come out of the penalty box, the trading program may be effectively short.
It is interesting to note the complete collapse of the emerging country ETFs as well as energy and materials.
Here are the ratings:
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