Commodity Supercycle
Even prior to Russia’s invasion of Ukraine, commodities were moving higher. Demand had been much more resilient than expected during the pandemic and is now exceeding pre-pandemic levels for many commodities.
On the supply side, companies reduced production in expectation of a drop in demand. And on a longer-term basis, there has been underinvestment in CAPEX due to the bear market over the long-term basis.
This means that prices should continue higher until we see a meaningful increase in new supply which could take years to play out.
On its own, this was a powerful trend, but Putin’s invasion of Ukraine is like throwing gasoline on this slow-moving fire as sanctions mean that supply will be constrained even more.
Investors definitely need to lean into this trend as well as…
Biotechs
While the commodity bull market is already running, the biotech bull is still in hibernation mode. In fact, over the last 7 years, the iShares Nasdaq Biotechnology ETF (IBB) is flat, while the S&P 500 is up 115% over the same period.
If you look at the biotech stocks on an individual basis, including the top components of IBB, you will find revenue growth in the low triple-digits and earnings growth in the mid-triple-digits. As a result, valuations have become very appetizing.
In essence, biotechs had a massive bull market from 2009 to 2015. The last 7 years has been about digesting this move. At the same time, this period of calm is laying the groundwork for the next explosive advance.
And, we know that this move is inevitable.
That’s because spending on healthcare continues to rise at a faster pace than inflation or the economy due to the aging population and government involvement. Companies are always improving existing treatments and innovating new ones.
Further, the costs of drug development have also plunged due to software and advances in genomics. Pharmaceutical companies also have an insatiable appetite for promising treatments or companies to keep their pipelines stocked.
Due to their underperformance, biotechs have been forgotten and ignored… but all the signs are indicating that the sector’s fundamentals are only getting stronger. This means that it will run faster and longer when it does emerge from this hibernation.
Here’s the Interesting Part…
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All the Best!
Jaimini Desai
Chief Growth Strategies, StockNews
Editor, POWR Stocks Under $10 Newsletter
SPY shares were trading at $447.81 per share on Friday morning, down $0.96 (-0.21%). Year-to-date, SPY has declined -5.42%, versus a % rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.
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