3 Biotech Stocks With Strong Quantitative Drivers

Investing in biotech stocks can lead to massive gains when positioned in the right names in such a promising industry. However, picking the best biotech stocks is much easier said than done. Even for professional asset managers with lots of experience and a deep understanding of the sector, identifying the best biotech stocks can be a challenging task.

No quantitative system can be perfect or infallible, and the numbers alone don't tell you everything you need to know when picking biotech stocks. However, incorporating quantitative indicators can be a smart way to make better decisions when investing, both in biotech or in any other sector, for that matter.

Investing In Biotechnology By The Numbers

You can't build a complete investment thesis for a stock looking solely at the numbers. Especially in the biotech industry, where different drugs and treatments can have a massive impact on the company's numbers, it is of utmost importance to take a look at the business behind such numbers in order to tell if the quantitative indicators will be sustainable or not going forward.

Nevertheless, quantitative analysis can provide an effective framework to select biotech stocks for further research. Importantly, the statistical evidence shows that companies which exhibit some quantitative attributes tend to outperform the market over the long term.

The PowerFactors System is a quantitative algorithm available to members in The Data-Driven Investor. This algorithm ranks companies using a combination of 4 main factors.

  • Financial quality: The system looks for companies with superior growth and profitability, considering metrics such as revenue growth expectations, free cash flow margin, and return on equity.
  • Valuation: This covers classical valuation ratios like price to earnings, price to earnings growth, and price to free cash flow.
  • Fundamental Momentum: the system looks for companies that are delivering earnings numbers above expectations and driving increasing expectations about future performance. This is because expectations can have a huge impact on stock prices over time.
  • Relative Strength: Winners tend to keep on winning, so you want to buy stocks that are outperforming the market in general and the industry, in particular.

Leaving the numerical considerations aside, the main rationale behind the PowerFactors system is actually quite simple. The algorithm is basically looking to buy solid companies (quality) at a reasonable price (value) when the business is doing better than expected (momentum) and the stock is outperforming (relative strength).

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Disclosure: I ha

ve no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

Disclaimer: I wrote this article myself, and it expresses my ...

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