A market theme that has lately emerged is investors rotating out of this summer’s high-flyers and into some of the market’s biggest laggards of the last few months. While this is encouraging from a bull’s perspective (as it shows that risk aversion hasn’t completely taken on a “head to the hills” aspect), it’s also a reason for embracing a measure of caution since the broad market clearly isn’t firing on all cylinders.
Among the intriguing beneficiaries of this rotation are many of the long-neglected healthcare sector stocks, particularly biotechs and pharmaceuticals. To that end, after being stuck in a seemingly interminable lateral range over the last several months, the Health Care Select Sector SPDR ETF (XLV) is beginning to show a measure of strength as investors have turned their attention to the bargain names within this group.
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Granted, the increasing relative strength now evident in healthcare sector stocks can be interpreted as a sign of defensiveness among reticent traders, but it can also be viewed favorably from the standpoint of participants finally recognizing the value to be found within the sector.
The promising nature of the general sector was recently underscored by market statistician Jason Goepfert. In a Tweet on the platform X earlier this spring, he noted that XLV closed positively immediately after hitting a 52-week low in mid-May, a seemingly innocuous event that had occurred only five times previously.
Why is this statistically significant? According to Goepfert, whenever this event happened in the past, it was followed by strong gains in the healthcare sector stocks—100% of the time to be exact—on three-month and six-month bases. (On a 12-month basis, the outperformance occurred 75% of the time.)
In particular, I’m finding that biotech stocks generally—and genomics stocks specifically—are providing a large number of attractive rebound candidates. Two such high-profile examples of stocks in this space that are in the early stages of a cyclical reversal are 10x Genomics (TXG) and Myriad Genetics (MYGN).
2 High-Profile Healthcare Sector Stocks Benefiting from Rotation
Both stocks have suffered major setbacks in the last few years, with both facing structural problems related to an industry downturn. However, both are now showing “green shoots” and near-term improvements in momentum, which suggest that any additional sector-wide traction in the biotech space will only fuel added share price strength.
10x Genomics (TXG)
For 10x Genomics, the problems involve a combination of disappointing earnings, slowing revenue growth and increased operating expenses.
The company provides technologies and solutions for single-cell and spatial genomics research, and its key product is the Chromium Single Cell platform, which enables high-throughput analysis of individual cells, providing insights into gene expression, immune profiling and other cellular characteristics.
The company has faced competitive pressures and uncertainty around future growth, particularly within its academic customer base. With more players entering the single-cell analysis space—not to mention potential budget cuts in academic institutions, a key customer segment—the company has experienced headwinds in recent years.
To overcome these challenges, 10x has recently implemented several cost-saving measures in order to protect its balance sheet. This included a reduction of 8% of its workforce, as well as significant reductions in non-headcount spending.
Collectively, management anticipates these measures will reduce operating expenses for 2025 by more than $50 million compared to 2024.
And while the firm anticipates that the funding and macro environments will “remain challenged” and that ordering patterns for instruments and large consumable orders will continue to be impacted by customers’ program cancellations and reprioritized budgets, 10x said it’s encouraged by the “continued strength in core usage trends, including double digit growth in Chromium reactions and broader Xenium utilization.”
Myriad Genetics (MYGN)
Myriad Genetics specializes in genetic testing and precision medicine, with a focus on areas like hereditary cancer risk assessment, prenatal screening and molecular diagnostics.
Myriad’s share price has cratered in recent years after a string of setbacks—including most recently UnitedHealthcare stopping coverage for the firm’s GeneSight pharmacogenomics test, a critical revenue driver. But the outfit is making some meaningful moves towards a U-turn, as evidenced by recently stronger margins, renewed guidance and strategic repositioning.
To resume growth, management is planning to revamp the firm’s strategic focus more toward prenatal testing and oncology. Even more specifically, it’s investing heavily in its offering of a tumor-informed, whole genome sequencing (WGS)-based test called Precise MRD for detecting minimal residual disease (MRD) in cancer patients.
Myriad is actively collaborating with research institutions to further develop and validate the clinical utility of Precise MRD, especially in areas like breast cancer. And on the financing front, Myriad recently secured a $200 million term loan from OrbiMed, a well-known investor in the healthcare industry, which provides the company with liquidity and flexibility to support its growth initiatives.
Analysts expect a big drop in earnings for 2025 but see the initiatives resulting in a substantial bottom-line rebound for next year. It’s a compelling story.
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