Top Biotech Companies to Watch in 2017
Now that we are in 2017, many investors are on the hunt for undervalued biotech stocks that could make them a fortune. I can hardly blame them, since biotech companies offer some of the most exciting growth opportunities around, bar none. But here’s what you need to know first.
It’s incredibly hard to value best biotech stocks. Their quarterly filings are stuffed with jargon, and many of their fates hinge on regulatory approval from the U.S. Food and Drug Administration (FDA).
Nonetheless, there’s huge money to be made from biotech companies—if you know what you’re doing.
The first thing is to look at the whole market. Are biotech stocks still on an upward track? Can investors still expect to double or triple their money by investing in specific biotech companies?
If the answer is yes, then you narrow your focus to individual biotech stocks. At this point, you have to determine whether the underlying biotech company is solid. But that’s not enough by itself. The biotech stocks also need to be undervalued, because it’s only a worthwhile investment if other investors haven’t grasped the potential yet.
Most people forget that last part. Investing isn’t just about finding a great company; the point is to find underestimated companies. The biggest gains are found in market inefficiencies, where the collective wisdom of investors is two steps behind the smart money. Keep that in mind.
So let’s take a look through the wide-angle lens first. Do biotech stocks still have room to the upside? In a word: Yes.
Part of the reason is that U.S. demographics are changing. The baby boomers are at retirement age, which has naturally led to a higher demand for pharmaceuticals. But the political winds are also shifting in favor of biotech stocks.
For instance, the NASDAQ Biotechnology Index (NBI) jumped nine percent the day after Donald Trump was elected as the 45th President of the United States.
Chart courtesy of StockCharts.com
This wasn’t a coincidence. The smart money understood Trump’s plans for the healthcare industry; they knew it would benefit biotech companies, which is why they turned so bullish on biotech stocks.
That answers the big question. But now let’s take a closer look at which tickers make my top biotech stocks list (in no particular order).
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#1 Best Biotech Stocks to Watch in 2017: Enzo Biochem, Inc. (NYSE:ENZ)
Enzo Biochem, Inc. (NYSE:ENZ) isn’t the biggest of the biotech stocks, but it has enormous potential in 2017. This integrated life science and biotech company is trading at a relatively low 8.57 price-to-earnings (P/E) ratio, despite having gained 60% in the last year.
If President-elect Trump and the GOP Congress successfully repeal Obamacare, there is reason to believe that Enzo’s clinical lab products could appreciate in value without a corresponding rise in expenses.
As such, I would not be surprised if ENZ stock’s gains stretch into triple digits by the end of 2017.
#2 Best Biotech Stocks to Watch in 2017: Exelixis, Inc. (NASDAQ:EXEL)
Exelixis, Inc. (NASDAQ:EXEL) is a weightier addition to the top biotech stocks list. It currently holds a valuation of $4.33 billion, up 171.28% from one year ago. This pharmaceutical-maker is on fire, especially since the U.S. presidential election. EXEL stock bumped up 20% right after the results came in, showing that the smart money expects it to outperform in a Trump presidency.
#3 Best Biotech Stocks to Watch in 2017: Heska Corp (NASDAQ:HSKA)
Despite the company’s less-than-stellar earnings per share growth, not to mention disappointing cash flow, Heska Corp (NASDAQ:HSKA) has shown that it can keep profit margins stable. Turnover isn’t a problem either. Heska is running a pretty tight ship compared to other biotech companies, which is why investors propelled HSKA stock up 85% during 2016.
I suspect that the firm’s financial prudence will come to bear in the medium term, as the herd of biotech stocks thins out. In such times, the winners take all, meaning that HSKA stock could keep pushing higher even if its fundamentals run out of steam.
#4 Best Biotech Stocks to Watch in 2017: Incyte Corporation (NASDAQ:INCY)
Incyte Corporation (NASDAQ:INCY) is at the forefront of the fight against cancer, which helps it distinguish itself from other biotech companies. But the comparison doesn’t stop there. When measured beside other biotech stocks, INCY has admirable cash flow and solid margins. These are both good reasons to be bullish on the stock, not to mention that its share price jumped 13% the day after Trump won the White House.
#5 Best Biotech Stocks to Watch in 2017: Biogen Inc (NASDAQ:BIIB)
With a market capitalization of $64.4 billion, Biogen Inc (NASDAQ:BIIB) is on the large end of the spectrum. It made this biotech stocks list for two reasons: 1) there could be a potential merger in the works, which would send BIIB stock surging, and 2) the company is on the verge of enormous success with a new Alzheimer’s drug.
Add that to the fact that Biogen is a stable, cash cow of a business and you end up with one of the most exciting biotech stocks on the market.
#6 Best Biotech Stocks to Watch in 2017: Bluebird Bio Inc (NASDAQ:BLUE)
Bluebird Bio Inc (NASDAQ:BLUE) has been on a bit of roller coaster ride in the last six months, but the share price is generally trending upward. When the dust settled on 2016, BLUE stock had gained more than 50% in the latter half of the year. Some analysts attribute these gains to the company’s success in early clinical trials, which are set to continue until December 2018.
Think about that for a second: the share price skyrocketed based on Bluebird’s drugs clearing regulatory hurdles. So what happens if those regulatory barriers are lowered by the Trump administration, as the president-elect has promised repeatedly? The answer is obvious: BLUE stock would catapult to triple-digit gains.
#7 Best Biotech Stocks to Watch in 2017: Celgene Corporation (NASDAQ:CELG)
It only makes sense to follow up Bluebird with Celgene Corporation (NASDAQ:CELG) because these two biotech companies are partnering on several drugs. Future success for one should mean success for the other, but there are nuanced differences when it comes to the net effects on their respective share prices. CELG stock only gained around 18% in the last six months, whereas BLUE stock surged more than 50%, yet both benefit from the successful clinical trials.
We could brush this discrepancy aside as nothing, but “where there’s smoke, there’s fire.” On closer inspection, it becomes obvious that BLUE stock gained more because it is one-thirtieth the size of Celgene. It is bound to be more sensitive. On the other hand, CELG stock is bound to be more stable.
#8 Best Biotech Stocks to Watch in 2017: Gilead Sciences, Inc. (NASDAQ:GILD)
Gilead Sciences, Inc. (NASDAQ:GILD) is another giant in the world of biotech stocks, but it’s trading at bargain prices. Most investors don’t seem to have realized how much the big players can benefit in a favorable patent and regulatory environment, so I would advise keeping a close eye on the mega biotech companies. Gilead still has a few potential franchise drugs in its pipeline, plus it has a big enough cash flow to embarrass Niagara Falls.
#9 Best Biotech Stocks to Watch in 2017: Amgen, Inc. (NASDAQ:AMGN)
Since we’re talking about the heavyweights of biotech stocks, it would be unconscionable to leave out Amgen, Inc. (NASDAQ:AMGN). Part of Amgen’s problem has been heightened competition, but I expect a reinforcement of incumbency power during the Trump administration to tilt the playing field back in the company’s direction.
The company also made this biotech stocks list for its cholesterol-lowering medication that could take flight in the years to come. All told, this might be the time to pick up AMGN stock on the cheap.
#10 Best Biotech Stocks to Watch in 2017: Ionis Pharmaceuticals Inc (NASDAQ:IONS)
I mentioned earlier the relationship between the size of biotech stocks and the potential return of their share prices. Bigger biotech companies can offer stability, but they also cushion some of the upside. Smaller biotech stocks, like Ionis Pharmaceuticals Inc (NASDAQ:IONS), are the risk-capital equivalent to betting on a blue chip stock like Amgen. The two biotech companies have been working on several projects together, but the upside may be lopsided in favor of Ionis.