Introduction: The Promise of Biotech Investments
Biotechnology, or biotech, presents a wealth of opportunities for savvy investors seeking long-term growth. This burgeoning industry revolves around developing cutting-edge drugs, medical apparatus, and technologies aimed at diagnosing, managing, and even eliminating some of the gravest diseases known to humanity.
As our global population grows older, the clamor for unique healthcare solutions is on an upswing, making biotech an appealing choice for investment.
How to Begin Your Biotech Investment Journey
Capitalizing on the exponential growth of the healthcare sector via biotech investment can be a rewarding venture. Here's how you can start:
Biotech Exchange-Traded Funds (ETFs)
ETFs that keep track of biotech firms offer an easy way to diversify and minimize risks associated with single-company investments. The iShares NASDAQ Biotechnology ETF (IBB) and SPDR S&P Biotech ETF (XBI) are among the favorite biotech ETFs of seasoned investors.
Biotech Mutual Funds
In the same vein as ETFs, mutual funds allow for diversified investment in a collection of biotech companies. Fidelity Select Biotechnology Portfolio (FBIOX) and T. Rowe Price Health Sciences Fund (PRHSX) are some of the most respected biotech mutual funds in the market.
Individual Biotech Stocks
For the more adventurous investor, individual biotech stocks offer considerable potential rewards, albeit with higher risks. To get the best out of this option, thorough research and a comprehensive understanding of the specific risks of biotech investments are essential. Amgen Inc. (AMGN) and Vertex Pharmaceuticals Incorporated (VRTX) are leading examples of individual biotech stocks.
Biotech Investment Risks: What You Need to Know
While the potential for high returns is a compelling feature of biotech investments, it's crucial to be cognizant of the risks. Here are some noteworthy considerations:
Unpredictability of Clinical Trials
Biotech companies heavily rely on clinical trial successes, which are often expensive and lengthy processes. A setback can cause substantial financial damage and hurt the company's stock value.
The biotech landscape is strewn with complex regulatory challenges that may delay product approvals or even lead to outright rejections, causing significant financial strain.
When patents expire, biotech firms face increased competition and possible profit reduction.
Biotech stocks are often more unstable than those from other industries due to the unpredictability of clinical trials and regulatory approvals. These can trigger dramatic price fluctuations, presenting additional risks (and potential opportunities) for investors.
Is Biotech Worth Investing In?
Biotech firms concentrate on devising groundbreaking drugs and treatments with the potential to revolutionize medical treatment. Nevertheless, their progress may be impeded by unexpected clinical trial outcomes and regulatory obstacles affecting their financial results.
For those with a long-term investment perspective and a willingness to bear some risk, biotech presents an intriguing investment prospect. However, proper research and professional financial advice are critical. A willingness to handle sharp value fluctuations is also essential.
Biotech firms aim to pioneer life-changing drugs that can dramatically enhance medical care and human wellbeing. Still, biotech stocks are not for those who are risk-averse. These extremely volatile equities can exhibit extreme price swings driven by their treatments' performance in FDA clinical trials and real-world use.
There have been instances when biotech stocks collectively outperformed the S&P 500 and periods when they underperformed. From early 2022 to early 2023, for instance, the iShares Biotechnology ETF (IBB) more or less equaled the benchmark index's performance—but from 2012 to 2015, it outdid the S&P 500 by over three times.
Choosing the right biotech stocks could be the difference between maintaining the status quo and achieving exceptional outperformance. To aid your portfolio's growth, here are ten of the best biotech stocks, divided equally between proven performers and analyst favorites with high potential for future success.
All these biotech stocks trade on U.S. exchanges, have a minimum $5 share price, and transact at least 500K shares daily. Furthermore, they all satisfy the following conditions:
- They generate sales through approved products.
- They have a high expected growth rate. When compiling this list, all included stocks were projected to grow their EPS by an average of at least 9% annually over the next five years.
- They have a history of earnings growth. The first five stocks on this list have experienced robust earnings increases and have been consistently profitable for at least the past three years.
This selection encompasses both stable biotech stocks and speculative stocks with significant growth potential. The first five are more stable, with positive earnings, recent growth, and expected future growth. The next five stocks on the list may not yet be profitable or have recently increased earnings, but they boast strong growth prospects.
Regardless of the criteria used for their selection, all biotech stocks experience substantial price volatility, leading to considerable price gains and losses over the short term.
Stable Biotech Stocks
- Halozyme Therapeutics, Inc. (HALO): +26.0%
- Innoviva, Inc. (INVA): +19.3%
- United Therapeutics Corporation (UTHR): +9.7%
- Bio-Techne Corp (TECH): +10.6%
- Vertex Pharmaceuticals Incorporated (VRTX): +8.3%
Biotech Stocks with Strong Growth Prospects
- Bioxcel Therapeutics, Inc. (BTAI): +294.1%
- Travere Therapeutics, Inc. (TVTX): +245.6%
- Liquidia Corporation (LQDA): +163.8%
- Sarepta Therapeutics, Inc. (SRPT): +96.0%
- BioMarin Pharmaceutical Inc. (BMRN): +58.0%
Biotech stocks, with their potential for high returns and intrinsic risks, are a compelling investment choice for those with a long-term perspective and a high risk tolerance. As with all investments, comprehensive research, professional advice, and a clear understanding of the industry's specifics are essential for success.
While biotech stocks' volatility can be stomach-churning, the rewards can be just as breathtaking, particularly for those willing to navigate the market's complexities. By understanding the landscape, considering various investment options, and being prepared for the ups and downs, you can potentially make substantial gains in this rapidly growing industry.