Apple is the current poster child for technological breakthroughs, as the iPhone is widely credited with ushering in the age of always-connected mobile computing. And while Apple’s run may not be over, it’s time investors look to other sectors in search for the next explosive breakthrough.
I happen to think we’ll find it in biotech…
As Harry points out, significant technological breakthroughs are born out of breakdowns. The U.S. healthcare system, in its current state, is unsustainable. We have the most expensive healthcare system in the world, and it’s not even the best. What’s more, millions of Baby Boomers will stretch the system to its breaking point over the next several years. Something will have to give.
I fully expect major breakthroughs in biotechnology will revolutionize our healthcare system. Investors will have an opportunity to profit handsomely along the way. To see how best to do this, let’s turn back to Apple.
I’ve identified two phases of Apple’s exponential stock growth. Here’s a chart of Apple’s stock going back to 2000. Each bar represents a month’s worth of trading:
Apple traded sideways from 2000 to 2005. This was its hibernation phase. It mounted its first exponential move higher between 2005 and 2008, before succumbing to a 60% pullback during the Great Recession. Then, the stock went through a second exponential growth phase starting in 2009. It was this second explosive wave that sent Apple from $100 to $700 a share.
I see a similar pattern forming in biotech…
Look at the iShares Biotechnology ETF (NYSE: IBB). It seems pretty clear that the biotech sector has emerged from the hibernation phase it had been in between 2004 and 2011.
You can see 2012 has been a great year for the industry, as IBB broke above the sideways range and mounted its first exponential growth wave:
At the moment IBB looks overbought and I believe a pullback lies ahead. Once I see that happen, it’s time to bet on biotech’s second exponential move.
I’ve identified a buy zone of $95 to $110 as the best place to get in. This is partially based on the analogue provided by Apple’s two-wave pattern.
The million-dollar question though is which biotech company will be the next Apple?
Will it be Amgen (NASD: AMGN), or Gilead (NASD: GILD)? Maybe Teva (NYSE: TEVA), or Biogen (NASD: BIIB)? While these are all solid companies, it’s difficult to predict which one will make the most explosive breakthrough discovery.
Thanks to exchange-traded funds like IBB, we don’t have to pick just one winner. IBB owns shares in each of these biotech firms, plus many others. All we need to do is patiently wait for biotech stocks to take a breather… then hop on board the second wave and ride it into the stratosphere.
If you haven’t done so already read the Survive & Prosper issue on “Economic Crises Foster the Next Breakthroughsre”