6 Biotech Stocks For Maximum Gains And Minimum Risk

The third quarter is off to a tumultuous start. The “No” vote in Greece over the weekend has brought new volatility into the market and this is an event that could very well rock the market for weeks until some sort of solution is worked out. Meanwhile, the plunge in Chinese equities during the past three weeks have evaporated over $2.5 trillion in market value even with the Chinese leadership stepping in to arrest the decline. Given the amount of high-interest margin loans fueling the market over the past year; this could get ugly if equities continue to decline in the Middle Kingdom.

Closer to home, Puerto Rico announced last week that the massive $72 billion in debt obligations the island commonwealth owes is “not payable” and wants creditors to step forward to renegotiate the country’s debt. This could easily roil the municipal bond market given how many state focused municipal bond funds hold Puerto Rican debt due to its triple tax-exempt status.

Given this, I want to talk about one of the sectors that I know well and write about often. This is the biotech sector, an area that has been one of the strongest areas of the market over the past five years and has easily outperformed the S&P 500 throughout 2015 as well.  I have been getting an increasing amount of questions around my investments and recommendations in this space from my readers on SeekingAlpha, Real Money Pro as well as my subscribers to Biotech Gems (shameless plug).

Let me start with a note of caution because as much as it pains me to say it; the sector is overdue for a correction. This is especially true in the small cap space. The top gainers among individual stocks in the first half of the year is completely dominated by the small cap biotech equities of which many have risen 300%, 400%, or even 500% in the first half of the year. Anecdotally, three of seven biotech/biopharma stocks that have been in Small Cap Gems portfolio (shameless plug two) since it was launched in July of last year have more than tripled. Not to look a gift horse in the mouth, but the sector is overdue for at least a decent correction as trees do not grow to the sky.

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Disclosure: Positions: Long ABBV, ANIP, CELG, GILD & PTX, DVAX

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Carol W 5 years ago Contributor's comment

You state "I believe we could well have lower entry points in the sector by the end of summer." If you believe that why are you recommending these picks now? I am confused. Thanks, Carol

Jacob Paterson 5 years ago Member's comment

I woud guess he is speaking to those of us who watch and plan. I gather from your comments you day-trade?