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Through the second half of 2015, biotech stocks were the preferred choice of investors seeking aggressive growth options. Even as the S&P 500 gained around 50% from 2013 up to that point, the likes of the iShares Nasdaq Biotechnology Index and the SPDR S&P Biotech nearly tripled in value.
However, this amazing run for biotech stocks came to a halt in Jul 2015, post which both these ETFs had lost nearly 40% by Feb 2016. Even now, they remain around 30% below the peak attained a few years ago.
Several investors remain wary of the biotech category, having lost substantially when the recent slide occurred. However, others recognize that biotechs have stabilized and still offer the potential to deliver substantial returns. Investing in biotech stocks makes for a lucrative option now as well as later this year.
Ever since the Presidential election campaign began, biotechs have been subjected to severe pressure, primarily due to allegations of overpricing. Democratic candidate Hillary Clinton was the first to raise the issue through a tweet and the election of a Republican candidate came as welcome news to the industry.
However, upon his election, Donald Trump has once again raised the issue of overpricing. But fears from such utterances may be overstated, since the statement has not and likely will not result in concrete policy actions. Instead, Trump has offered out the hope of a faster approval process and deregulation.
Meanwhile, even as other sectors are being unable to sustain a steady pace of growth, biotechs are regularly posting strong gains. For instance, Celgene Corp. posted a substantial fourth quarter sales growth of 16%, riding on its blockbuster cancer drug Revlimid. Though growth for the sector remains well below the pace registered in its heydays, it is still high enough to outperform several other categories in the current scenario.
Solid Options, M&A Activity Boosts Gains
Biotech stocks are viewed as inherently risky options since companies from the sector face numerous challenges related to approvals and the patenting process. However, once a drug is successfully developed, companies often develop unassailable positions in specific domains.
Additionally, the development of treatments such as orphans gives companies like BioMarin Pharmaceutical Inc. (BMRN - Free Report) virtual monopolies for a long period of time. Since expenditure on such treatments is not discretionary in nature, this also guarantees a steady revenue stream which is largely free of uncertainty.
Additionally, the sector has witnessed heated M&A activity in the past. Last year saw deals worth nearly $1.7 trillion being conducted. Of these 80% were strategic in nature, a trend which is likely to continue unhindered given the regulatory stance of the current administration. With large companies holding significant cash reserves and small stocks available at attractive prices, this may be the year when the sector witnesses a substantial degree of consolidation.
Our Choices
Biotechs have recovered substantially from the losses they suffered up to early last year. Despite the risk associated with them, they remain good options for investors looking for steady growth, largely unaffected by the fortunes of the broader economy.
Adding biotech stocks to your portfolio looks like a smart option at this point. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.
Performance of Stock Picks vs Biomedical & Genetics Sector (3 months)
Cellectis S.A. (CLLS - Free Report) is a Paris based gene-editing company. The company focuses on developing immunotherapies based on gene edited engineered CAR-T cells.
Cellectis expected earnings growth of 39.4% for the current year. Its earnings estimate for the current year has improved by 42.5% over the last 30 days. The stock has returned 21.4% over the last three months, outperforming the Zacks Medical - Biomedical and Genetics sector, which has gained 4.8% over the same period. The stockhas a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Exelixis, Inc. (EXEL - Free Report) is a biopharmaceutical company committed to developing small molecule therapies for the treatment of cancer.
Exelixis has a Zacks Rank #2 (Buy). Its expected earnings growth for the current year is more than 100%. Its earnings estimate for the current year has improved by more than 100% over the last 30 days. The stock has returned 60.6% over the last three months, outperforming the Zacks Medical - Biomedical and Genetics sector, which has gained 4.8% over the same period.
Exact Sciences Corp. (EXAS - Free Report) uses applied genomics to develop effective, patient-friendly screening technologies for use in the detection of cancer.
Exact Sciences has a Zacks Rank #2. The company has expected earnings growth of 18.4% for the current year. Its earnings estimate for the current year has improved by 1% over the last 30 days. The stock has returned 10.4% over the last three months, outperforming the Zacks Medical - Biomedical and Genetics sector, which has gained 4.8% over the same period.
Sunesis Pharmaceuticals, Inc. is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel small molecule therapeutics for oncology and other serious diseases.
Sunesis Pharmaceuticals has a Zacks Rank #2. The company has expected earnings growth of 19.5% for the current year. Its earnings estimate for the current year has improved by 9.2% over the last 30 days. The stock has returned 7.6% over the last three months, outperforming the Zacks Medical - Biomedical and Genetics sector, which has gained 4.8% over the same period.
Celgene is a biopharmaceutical company focused on the discovery, development and commercialization of drugs targeting cancer and inflammatory diseases
Celgene has a Zacks Rank #2. The company has expected earnings growth of 27.5% for the current year. Its earnings estimate for the current year has improved by 1.2% over the last 30 days. The stock has returned 7.1% over the last three months, outperforming the Zacks Medical - Biomedical and Genetics sector, which has gained 4.8% over the same period.
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5 Great Biotech Stocks to Buy Now
Through the second half of 2015, biotech stocks were the preferred choice of investors seeking aggressive growth options. Even as the S&P 500 gained around 50% from 2013 up to that point, the likes of the iShares Nasdaq Biotechnology Index and the SPDR S&P Biotech nearly tripled in value.
However, this amazing run for biotech stocks came to a halt in Jul 2015, post which both these ETFs had lost nearly 40% by Feb 2016. Even now, they remain around 30% below the peak attained a few years ago.
Several investors remain wary of the biotech category, having lost substantially when the recent slide occurred. However, others recognize that biotechs have stabilized and still offer the potential to deliver substantial returns. Investing in biotech stocks makes for a lucrative option now as well as later this year.
Regulatory Fears Overstated, Growth Remains Strong
Ever since the Presidential election campaign began, biotechs have been subjected to severe pressure, primarily due to allegations of overpricing. Democratic candidate Hillary Clinton was the first to raise the issue through a tweet and the election of a Republican candidate came as welcome news to the industry.
However, upon his election, Donald Trump has once again raised the issue of overpricing. But fears from such utterances may be overstated, since the statement has not and likely will not result in concrete policy actions. Instead, Trump has offered out the hope of a faster approval process and deregulation.
Meanwhile, even as other sectors are being unable to sustain a steady pace of growth, biotechs are regularly posting strong gains. For instance, Celgene Corp. posted a substantial fourth quarter sales growth of 16%, riding on its blockbuster cancer drug Revlimid. Though growth for the sector remains well below the pace registered in its heydays, it is still high enough to outperform several other categories in the current scenario.
Solid Options, M&A Activity Boosts Gains
Biotech stocks are viewed as inherently risky options since companies from the sector face numerous challenges related to approvals and the patenting process. However, once a drug is successfully developed, companies often develop unassailable positions in specific domains.
Additionally, the development of treatments such as orphans gives companies like BioMarin Pharmaceutical Inc. (BMRN - Free Report) virtual monopolies for a long period of time. Since expenditure on such treatments is not discretionary in nature, this also guarantees a steady revenue stream which is largely free of uncertainty.
Additionally, the sector has witnessed heated M&A activity in the past. Last year saw deals worth nearly $1.7 trillion being conducted. Of these 80% were strategic in nature, a trend which is likely to continue unhindered given the regulatory stance of the current administration. With large companies holding significant cash reserves and small stocks available at attractive prices, this may be the year when the sector witnesses a substantial degree of consolidation.
Our Choices
Biotechs have recovered substantially from the losses they suffered up to early last year. Despite the risk associated with them, they remain good options for investors looking for steady growth, largely unaffected by the fortunes of the broader economy.
Adding biotech stocks to your portfolio looks like a smart option at this point. We have narrowed down our search to the following stocks based on a good Zacks Rank and other relevant metrics.
Performance of Stock Picks vs Biomedical & Genetics Sector (3 months)
Cellectis S.A. (CLLS - Free Report) is a Paris based gene-editing company. The company focuses on developing immunotherapies based on gene edited engineered CAR-T cells.
Cellectis expected earnings growth of 39.4% for the current year. Its earnings estimate for the current year has improved by 42.5% over the last 30 days. The stock has returned 21.4% over the last three months, outperforming the Zacks Medical - Biomedical and Genetics sector, which has gained 4.8% over the same period. The stockhas a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Exelixis, Inc. (EXEL - Free Report) is a biopharmaceutical company committed to developing small molecule therapies for the treatment of cancer.
Exelixis has a Zacks Rank #2 (Buy). Its expected earnings growth for the current year is more than 100%. Its earnings estimate for the current year has improved by more than 100% over the last 30 days. The stock has returned 60.6% over the last three months, outperforming the Zacks Medical - Biomedical and Genetics sector, which has gained 4.8% over the same period.
Exact Sciences Corp. (EXAS - Free Report) uses applied genomics to develop effective, patient-friendly screening technologies for use in the detection of cancer.
Exact Sciences has a Zacks Rank #2. The company has expected earnings growth of 18.4% for the current year. Its earnings estimate for the current year has improved by 1% over the last 30 days. The stock has returned 10.4% over the last three months, outperforming the Zacks Medical - Biomedical and Genetics sector, which has gained 4.8% over the same period.
Sunesis Pharmaceuticals, Inc. is a clinical-stage biopharmaceutical company focused on the discovery, development and commercialization of novel small molecule therapeutics for oncology and other serious diseases.
Sunesis Pharmaceuticals has a Zacks Rank #2. The company has expected earnings growth of 19.5% for the current year. Its earnings estimate for the current year has improved by 9.2% over the last 30 days. The stock has returned 7.6% over the last three months, outperforming the Zacks Medical - Biomedical and Genetics sector, which has gained 4.8% over the same period.
Celgene is a biopharmaceutical company focused on the discovery, development and commercialization of drugs targeting cancer and inflammatory diseases
Celgene has a Zacks Rank #2. The company has expected earnings growth of 27.5% for the current year. Its earnings estimate for the current year has improved by 1.2% over the last 30 days. The stock has returned 7.1% over the last three months, outperforming the Zacks Medical - Biomedical and Genetics sector, which has gained 4.8% over the same period.
Just Released – Driverless Cars: Your Roadmap to Mega-Profits Today
In this latest Special Report, Zacks’ Aggressive Growth Strategist Brian Bolan explores a full-blown technological breakthrough in the making – autonomous cars. He also spotlights 8 stocks with tremendous gain potential to feed off this phenomenon. Click to see the stocks right now >>