Biotech Stocks to Buy Now Could Produce Market-Beating Returns

Paul Dykewicz

Biotech stocks to buy now in pursuit of market-beating returns feature several promising companies that are seeking to develop important new pharmaceutical treatments or cures for life-threatening or debilitating medical conditions.

People who like to back companies that will help to improve health and happiness may feel doubly rewarded if they also can receive a superior return on their investments in biotech stocks to buy now. Such stocks come with uncertainty and risk, but the rewards for the biggest successes can help to more than compensate for the ones that fail to fulfill their hoped-for promise.

“The real thrill of biotech investing is the journey from pioneering scientific insight to product that actually changes lives,” said Hilary Kramer, who hosts a national radio investment program called “Millionaire Maker” and leads the 2-Day Trader service that has netted profits in 20 of its first 25 trades for an average return of 8.70 percent.

Until these biotechnology companies gain final Food and Drug Administration (FDA) approval for their potential breakthrough new treatments, they often are on a risk-filled journey that requires continued funding of costly medical research with the goal of successfully producing an effective and marketable new pharmaceutical. The process will take years and potentially billions of dollars in development costs, with no guarantee of success in a painstaking search of the next great cure.

Paul Dykewicz interviews Hilary Kramer, whose new 2-Day Trader service is 20 out of 25 in recommending profitable trades averaging 8.7 percent returns since its launch.

IPO Edge Chief Hilary Kramer Highlights Biotechnology Stocks to Buy Now

The potential benefit of biotechnology stocks is one of the reasons Kramer said she gives the industry a central role in her upcoming book, “GameChanger Investing,” and in her new trading service, IPO Edge, which launched on Dec. 10. Kramer continued that she is not a huge fan of big biotechnology companies that already have become “multi-billion-dollar franchises.”

“Those stocks can be interesting but, at this point in their development, they’re really just like any other kind of company,” Kramer said. “They survive by capturing market share.”

That additional market share can come through internal research and development or by acquiring the most promising startups, said Kramer, who also leads the GameChangers advisory service that has booked 33 profitable trades in its last 39 closed positions.

Upstarts Offer the Biggest Potential Among Biotech Stocks to Buy

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Upstart biotechnology companies that recently may have completed their initial public offerings (IPOs) are favorites of Kramer, who said she would rather invest in them before the industry giants try to buy them.

“Wall Street has a hard time decoding these companies while they’re small and unproven, which gives retail investors a chance to exploit the big players’ blind spots,” Kramer said. “A lot of institutional investors have locked themselves out of little stocks for various reasons — too small, not famous enough, not enough shares on the market. But we can move in this world with complete freedom, and then, when the stocks mature, we reap the rewards of our patience and conviction.”

For example, there are nearly 600 biotech stocks on the market right now. Most of them are tiny by Wall Street standards.

“Barely 10 percent of them are profitable and only about half generate appreciable revenue yet,” Kramer acknowledged. “Institutional investors aren’t interested in the rest. That’s our world.”

Biotechnology Stocks to Buy Always Include a New Company to Discover

Possibly the biggest appeal of biotechnology is that there always is a new company to discover, Kramer said. Small stocks grow into big ones and get rolled up into the largest pharmaceutical companies through buyouts but, as long as the ideas keep flowing, new companies will emerge to replace them, she added.

“I love the latest round of biotech IPOs,” said Kramer, who also leads the Turbo Trader, High Octane Trader and Inner Circle advisory services. “Some of them like Kaleido BioSciences (NASDAQ:KLDO) and Vir Biotechnology (NASDAQ:VIR) present huge value for investors who understand the technology and have the nerve to buy and hold the dip. Others like SpringWorks Therapeutics (NASDAQ:SWTX) and Karuna Therapeutics (NASDAQ:KRTX) started strong and got stronger.”

Chart courtesy of www.stockcharts.com

Those biotechnology stocks collectively are part of the industry’s future, Kramer counseled. Successful investors anticipate the future instead of chasing past winners, she continued.

“This is where people need to be in 2020 and beyond,” Kramer said.

Chart courtesy of www.stockcharts.com

Chart courtesy of www.stockcharts.com

Chart courtesy of www.stockcharts.com

Established Biotechnology Stocks Also Can Be Worth Buying to Limit Risk  

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“For investors who want something a little more established, BioMarin (NASDAQ:BMRN) and GW Pharmaceuticals (NASDAQ:GWPH) are much farther along, with products past the FDA approval process and real money coming in,” Kramer said. 

Chart courtesy of www.stockcharts.com

Chart courtesy of www.stockcharts.com

“Beyond that, you’re really inching into the Big Pharma world where innovation is bought instead of created in the lab,” Kramer said. “I love mature companies like Novartis (NYSE:NVS) as well, but the reasons are very different. If anything, these are defensive stocks… reliable cash machines that stay relevant through acquisitions. Novartis is one of the better ones, with a solid product portfolio and a 3 percent yield. Lock it in and let management do the work of rolling up more speculative rivals for you. But if you’re willing to take on more risk for potentially huge rewards, stay small and patient.”

Chart courtesy of www.stockcharts.com

Novartis is among the top 20 stocks to buy for 2020, according to Jefferies International Ltd.

Sector Is ‘Very Cyclical,’ Even Among Biotech Stocks to Buy, Carlson Warns 

“The biotech sector is very cyclical,” cautioned Bob Carlson, who leads the Retirement Watch advisory service. “It’s best to buy the sector when prices have lagged for a while and sell after investors are exuberant about the stocks again. We’re in one of those times when it’s probably good to buy biotech stocks. After lagging the indexes, biotech stocks are surging ahead. Also, flows into biotech-oriented funds are positive after being negative most of the year.”

Investors can buy stocks of the industry-leading biotech firms or research different companies in hopes of identifying those that are about to have product breakthroughs, Carlson advised.

“I recommend using funds,” Carlson said. “Among active mutual funds, there aren’t any that specialize in the subsector. The best choice is T. Rowe Price Health Sciences (MUTF:PRHSX). The largest sector in the portfolio is biotechnology, which is about 35 percent of the fund. The fund is almost always among the top quarter of health care funds ranked by Morningstar.”

Chart courtesy of www.stockcharts.com

Pure Play Biotech Stocks to Buy Are Available Through ETFs

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Pure play investments in the biotechnology sector are available through exchange-traded funds (ETFs), Carlson said. 

“I recommend SPDR S&P Biotech (NYSE:XBI),” Carlson told me. “The performance can be very volatile, but it generally beats the sector index. In bull markets, it is among the top-performing funds in the category and, in bear markets, it is near the bottom of the category. It recently held 115 stocks. Top holdings were Arrowhead Pharmaceuticals (NASDAQ:ARWR), The Medicines Co. (NASDAQ:MDCO) , Intercept Pharmaceuticals Inc. (NASDAQ:ICPT), Seattle Genetics (NASDAQ:SGEN) and Alnylam Pharmaceuticals (NASDAQ:ALNY).”

Major biotechnology ETFs and indexes have outperformed the market so far this year as the SPDR S&P Biotech ETF (XBI) jumped 30.9 percent, compared to the S&P 500 Index’s 26.3 percent gain, according to Zacks. In addition, the ProShares Ultra Nasdaq Biotechnology (BIB) has soared 43.8 percent to leave the Nasdaq Composite in its wake with a year-to-date return of 29.6 percent.

Chart courtesy of www.stockcharts.com

Biotech stocks to buy now feature several under-the-radar investment opportunities that may appeal to mainstream investors who do not follow the industry closely. Investors who want to buy shares in promising companies that are attempting to develop, test and bring new pharmaceuticals to market in the future may find some profitable opportunities while also trying to leave the world healthier than it is now.

Paul Dykewicz, www.pauldykewicz.com, is an accomplished, award-winning journalist who has written for Dow Jones, the Wall Street JournalInvestor’s Business DailyUSA Today, the Journal of Commerce, Seeking Alpha, GuruFocus and other publications and websites. Paul is the editor of StockInvestor.com and DividendInvestor.com, a writer for both websites and a columnist. He further is the editorial director of Eagle Financial Publications in Washington, D.C., where he edits monthly investment newsletters, time-sensitive trading alerts, free e-letters and other investment reports. Paul previously served as business editor of Baltimore’s Daily Record newspaper. Paul also is the author of an inspirational book, “Holy Smokes! Golden Guidance from Notre Dame’s Championship Chaplain,” with a foreword by former national championship-winning football coach Lou Holtz. Follow Paul on Twitter @PaulDykewicz.

 

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