After a stellar rally in 2020, biotech stocks have been selling off over the past couple of months. This offers investors a buying opportunity to scoop up quality biotech stocks such as Gilead Sciences (GILD) and Vertex Pharmaceuticals (VRTX) at cheaper prices.Biotech stocks experienced a massive rally in 2020. The SPDR S&P Biotech ETF (XBI) soared over 110% from April 8th, 2020, until its high on February 8th of this year. This was more than twice the S&P 500’s gain of 42% over the same period. The industry rose on the excitement of potential Covid-19 treatments and vaccines.
However, since February of this year, shares of biotech companies have underperformed. Many stocks in the industry were stung by setbacks in clinical trials, a rotation away from growth stocks, drug-pricing reforms, and delayed drug approvals. But I believe the selloff is overdone, as these factors weighing on the industry are temporary. The overall bullish growth story for biotech innovations and advancements remains. Traders are starting to agree with me as XBI has been trending upward over the past couple of trading sessions.
Investors are starting to realize that while COVID is improving in the United States, there are still parts of the world, such as India, plagued by the virus. This means eyes are back on biotech companies, as the pandemic not only brought attention to companies working on vaccines but also biotechs that were not. That is why I am recommending Gilead Sciences Inc . (NASDAQ:GILD) and Vertex Pharmaceuticals Inc. (NASDAQ:VRTX), two biotech firms I believe will see their shares rise in the months ahead.