MedTech Is Outperforming - Here's A Name To Follow

April 12, 2016 - PRLog -- The iShares Nasdaq Biotechnology (IBB) ETF performed fairly well last week, posting a gain of 3.2%. The best day was Wednesday, April 6, 2016 - the day Pfizer and Allergan called off their proposed $160 billion merger. "Pfizergan" was killed due to a new change in U.S. tax law designed to curve a flurry of recent of tax inversions, the process by which large U.S.-based corporations acquire smaller rivals and move offshore to reduce income taxes. In the case of Pfizer-Allergan, the plan was to re-incorporate in Ireland, a move that Pfizer CEO, Ian Read, estimated would save the combined company approximately $1 billion per year.

The breakout of the proposed merger created a wave of buying in the biotech sector as investors speculated where Pfizer and Allergan would turn their attention to now that the tax inversion strategy seems quashed. And although the breakup fee to Allergan is only a measly $150 million, I think it will bring about a change in strategy for some of the world's largest players when it comes to future M&A.

Despite the impressive week for biotech stocks, the IBB is still down 20% year-to-date. The reasons are numerous, but political rhetoric stemming from the U.S. election and the potential for pricing pressure on expensive biopharma drugs seems at the center of investor angst in 2016. This issue will not be easily solved, but what I do find interesting is that it seems isolated to the pharmaceutical and biotechnology sectors. The iShares U.S. Medical Device (IHI) ETF is having a decent year, up 4% so far in 2016 and up 10% over the past six months. There are many biotech investors I know that would love to be up 10% since October 2015!

Below we discuss several reasons why the Medical Device sector may be outperforming the Biopharma sector, and highlight one small-cap name investors might want to delve deeper into for possible investment.

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