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Within the Medical sector, biotech stocks have performed well in the first half of the year, despite challenges like rising competition, pipeline setbacks, slowdown in growth of mature products and generic competition for certain key drugs. The sector recovered from the pricing controversy of 2016 and defied uncertainties surrounding President Trump’s proposed healthcare policy.

Some of the factors that are responsible for the biotech sector performing well in the current year so far are an increase in FDA approvals, new product sales ramp up, R&D success and innovation, strong clinical study results and continued strong performance of legacy products.

A few other events also contributed to the rally in the sector in the past month. These include pharmaceutical giant, Gilead Sciences (GILD - Free Report) decision to acquire immunotherapy focused company, Kite Pharma .

The FDA’s approval of Novartis AG’s NVS gene transfer treatment, Kymriah (tisagenlecleucel) suspension for the treatment of patients up to 25 years of age with B-cell precursor acute lymphoblastic leukemia (ALL) that is refractory or in second or later relapse was another good news for the sector. Kymriah, formerly CTL019, is the first chimeric antigen receptor T cell (CAR-T) therapy to be approved.

Further, two companies -- Alexion Pharmaceuticals, Inc. (ALXN - Free Report) and Eli Lilly and Company (LLY - Free Report) -- announced restructuring initiatives including job cuts recently. While the former will reduce its global workforce by about 20%, Lilly will do the same by about 8%. Both the companies plan to invest the cost savings in new drugs/line extensions which in turn bodes well for growth of the sector as well.

Industry and Rank Performance

The broader Drugs market is up 11.9% year to date, outpacing the 11.8% gain for the S&P 500.

Two of the four Zacks industries — Medical-Biomed and Genetics (16% versus 11.8%) and Large-Cap Pharma (16% versus 11.8%) have outperformed the S&P 500 Index.

The Zacks Industry Rank for Medical-Biomed and Genetics is #105 (top 40% of the 265 Zacks industries), for Medical-Drugs the rank is #105 (top 40%), for  Large-Cap Pharma it is #79 (top 30%) Our back testing shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

Which Stocks to Pick?

To cash in on the favorable trends in the drug/biotech space, this is the right time to add a few stocks that have growth potential.

We have taken the help of the Zacks Stock Screener  to select the right stocks. To shortlist the stocks from the vast universe of pharmaceutical companies, we have picked stocks that carry a Zacks Rank #1 (Strong Buy) or 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

To further narrow down the list, we have selected those which have a Growth Score of A or B. Our research shows that stocks with a Growth Score of A or B when combined with a Zacks Rank #1 or 2 offer the best upside potential.

Here are the four stocks that fulfilled these criteria:

Corcept Therapeutics Inc. (CORT - Free Report) carries a Zacks Rank #2. The stock has a Growth Score of A. Shares of the company have gained 148.5% year to date, outperforming the Medical-Drugs industry’s gain of 3.6%. Also, it is expected to record 500% earnings growth for 2017 and 65.9% for 2018. Sales are expected to grow 85.9% in 2017 and 45.4% in 2018.

Heska Corp. (HSKA - Free Report) carries a Zacks Rank #2. The stock has a Growth Score of B.  Shares of the company have gained 26.1% year to date, outperforming the Medical-Biomed and Genetics industry’s gain of 16%. Also, it is expected to record 39.9% earnings growth in 2017 and 6.3% in 2018. Sales are expected to grow 9.8% in 2017 and 10.9% in 2018.

Sangamo Therapeutics, Inc. (SGMO - Free Report) carries a Zacks Rank #2. The stock has a Growth Score of A. Shares of the company have gained 339.3% year to date, outperforming the Medical-Biomed and Genetics industry’s gain of 16%. Also, it is expected to record 16.3% earnings growth in 2017 and 6.5% in 2018. Sales are expected to grow 73.3% in 2017 and 74.9% in 2018.

H. Lundbeck A/S (HLUYY - Free Report) carries a Zacks Rank #2. The stock has a Growth Score of B. Shares of the company have gained 41.4% year to date, outperforming the Large-Cap Pharma industry’s gain of 16%. Also, it is expected to record 38.6% earnings growth in 2017 and 10% in 2018. Sales are expected to grow 16.5% in 2017 and 3.3% in 2018.

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