As investors await the Federal Reserve rate decision Wednesday afternoon, Goldman Sachs highlighted to clients an overlooked group of stocks poised to benefit from the move. Biotechnology stocks offer an under-the-radar and unappreciated way to profit from the central bank's looming campaign to start cutting the cost of borrowing, according to Goldman Sachs. "For those looking for a high torque play into the first rate cut this Wednesday, buying biotech checks a lot of boxes," wrote John Flood, Goldman's head of Americas equities sales trading, in a recent note.
Biotech is a back door way to play the Fed because the group is highly sensitive to interest rates, owing to its predicted cash flows coming so far out into the future, Goldman said. More fundamentally, however, biotech has benefited lately from improved business and brighter investor sentiment, the investment bank said, citing "positive clinical catalysts/events more recently and the regulatory environment has been more benign than typical of an election year." Lastly, Goldman said the group is still out of favor among hedge funds whose investments are tracked in the investment bank's "prime book," falling to the 13th percentile in the long/short ratio on a 1-year basis and the 4th percentile on a 5-year view, as of Monday.
From a contrarian point of view, such "positioning [is] a potential tailwind for biotech now too," Flood's note said. Regardless of whether or not the Federal Reserve delivers a quarter point or a.