Given the market's strong bull market and massive gains off the March 2020 lows, there has been a dearth of opportunities for investors for much of the past couple of years. Now, there is some relief on the horizon due to the correction in the stock market which has prevailed for nearly all of 2022.
Stock market selling and fear are what create opportunities for value investors, however, there remain some potent headwinds like inflation, rising rates, and a slowing economy. All three factors are somewhat interrelated, but they make it more challenging for these stocks to see substantial earnings growth as these factors are harbingers of margin compression, an earnings contraction, and higher rates.
Amid these challenging circumstances, investors should prioritize companies whose earnings and revenues are less sensitive to changes in economic growth. Out of these groups, the best candidates are the biotech stocks as they have been flat in terms of price performance over the last 7 years even while the leading candidates in the sector have experienced earnings that have tripled or quadrupled.
As a result, valuations have become very attractive in the sector. Further, the long-term thesis for these stocks only continues to strengthen due to an aging population and increasing spending per patient. Advances in computing and science have also lowered the cost of drug development and increased its precision. Finally, many pharmaceutical companies are expected to go on a massive acquisition binge over the next couple of years to restock their pipelines.
Popular biotech exchange-traded funds to consider (ETF) include SPDR S&P Biotech ETF
Within the biotech group, the genomics industry offers the most upside. Currently, the industry is in its early stages, but the biggest breakthrough is helping patients and doctors diagnose diseases at a much earlier stage which increases the chances of successful treatment. Next-generation genomics treatment involves attacking the disease at a genetic level or even fixing genetic defects in patients to prevent getting sick.
Right now, many genomics stocks have been battered due to the selloff in the broader market and risk-off tenor around speculative stocks. This is a good time to begin the due diligence process to learn about these companies as there's a good chance that the next batch of market leaders will emerge from this group.
Genomics ETFs to consider include iShares Genomics Immunology and Healthcare ETF
