5 Tiny Biotech Stocks With Superb Growth Potential

Market watchers still quibble over whether the equity market entered bear market territory or underwent a correction in year-end 2018. But there is little debate over the fate of pharma stocks during this period. The sector plummeted last fall with the SPDR S&P Biotech ETF (XBI) falling 35% from the peak achieved in September. This is a bear market in no uncertain terms.

However, biotech got off to a far better start this year, with the XBI up 17.7% year to date. A spate of deal-making revived the sector in January, marked by some of the largest mergers in the history of the industry.

While the specter of pricing pressure hangs over biotech, the sector retains the ability to provide outsized gains. For investors with substantial risk appetite, biotech retains the promise of strong returns in 2019. This is why it makes sense to pick up strong, cheap performers from the sector, priced below $10. 

2019 to Witness Spurt in Deal-Making

Earlier in January, Bristol-Myers Squibb (BMY - Free Report) announced it was purchasing Celgene (CELG - Free Report) for $74 billion in a cash and stock deal. The very next week, Eli Lily (LLY - Free Report) said it was acquiring cancer drug marker Lexi Oncology (LOXO - Free Report) for $8 billion. This continued last year’s trend of frenetic deal-making. Notably, Takeda Pharmaceuticals (TAK - Free Report) acquired Shire for $8 billion.

And healthcare sector deals are likely to increase 7% over last year to $331 billion in 2019. This prediction was made in a report issued jointly by Oxford Economics and Chicago-based law firm Baker McKenzie. This is a welcome change from the 5% decline experienced last year. It also does not include the deals involving Eli Lily and Bristol-Myers Squibb.

Pricing Pressure Likely, Ability to Boost Gains Remain

Following the recent mid-term elections, frenetic legislative activity is being witnessed on the pricing pressure front. At this point, it seems that Democrats and Republicans may yet make common cause on the issue. However, the Trump administration’s proposal to crack down on pharmacy benefit managers (PBMs) could spare the pharma industry some blushes.

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