As we find ourselves in month seven of the global pandemic, investors are now looking ahead to what sectors and specific equities will hold up in the long term, and provide the highest potential in profits for the retail investor. Three main sectors come to mind, Biotech, Technology, and Healthcare.
Within the Biotech realm, the appeal is quite obvious, as companies such as Moderna, Gilead, and Regeneron are all apart of the global “vace-race”, i.e. vaccine race, to help eradicate COVID 19. The company that wins this race is likely to explode in value, and get the majority of the news coverage. However, outside of these mega, blue-chip companies, there is also room for smaller cap biotech companies that likely have low (or even negative) returns, in anticipation that they will provide superior returns over the long run, potentially outperforming the market. Examples would be XIB (XBiotech), or VNDA (Vanda Pharmaceuticals). As horrible as COVID 19 has been, this is unlikely to be the last major health crisis we face as the human race. Chronic illness, diseases, and disorders all will likely rise in Western countries as time goes on, and our population ages. The hope is that these young and intelligent companies can help us foot the health bill, while also netting solid returns for investors.
In terms of technology, I do not mean names such as Amazon, Alphabet, or Facebook, and other FAANGs companies, but the smaller firms that have put their R&D into cloud computing and artificial intelligence. Firms such as SPLK (Splunk) and TWLO (Twilio), bot have undergone recent corrections of 5%. However, with rising sales numbers coming from both companies over the last 5-10 years, and expected higher future demand in their products as more of the world’s processes moves online, small cap technology stocks deserve a place in ones portfolio, especially if looking for capital gains.
Finally, Healthcare companies are also note-worthy. Life as we know it has changed, we are seeing more interest and awareness in disease, disease protection, and favoritism towards government-sponsored health action. The small-cap healthcare technology space (as of Tuesday’s close) was down 14% from its highs. With the realization that public health events may cause future public health crises, investors and the public alike have a newfound respect and interest in both the companies helping solve these health issues to the individual doctors who stand on the front lines and risk their own lives to keep us safe and feeling better.
It is tough to imagine that small, entrepreneurial and under-owned small cap health care, biotech, and technology stocks won’t be major winners in ones portfolio in the next decade and beyond