The Hottest Sector Right Now

Written By Christian DeHaemer

Posted January 14, 2014

Biotech stocks are on fire…

There are three triple-digit gainers in this market already. Intercept Pharmaceuticals (NASDAQ: ICPT), Conatus Pharmaceuticals (NASDAQ: CNAT), and Neurocrine Biosciences (NASDAQ: NBIX) have each cleared the 100% mark for 2014.

ICPT launched almost 600% because the Data and Safety Monitoring Board stopped the test for its liver disease therapy early…

They stopped it because it worked too well!

wd112

The company received fast-track status for its trial drug that treats chronic liver disease. If approved, patients receiving the drug (obeticholic acid) could reduce the risk of needing a liver transplant.

And that’s just one company…

Biotech and medical stocks in general are seeing some of the biggest gains since the late 1990s. Of the top 26 biggest performers of the year, 21 are in the health care sector, and the majority of those are in biotech.

At Technology and Opportunity, we caught the wave early. Our biotech portfolio is all in the green, without a single loser and with winners of 82%, 58%, and 41% in just a few months.

We have two more medical stock recommendations in our next issue.

Best Market in 15 Years

Biotech is a cyclical business. Big companies make money on big drugs, but there is always a time crunch as the drugs go off patent. More than $60 billion in revenue was lost by big pharma from 2010 to 2012, and another $65 billion will be lost by 2017.

To replenish the coffers, these companies stock their pipelines through mergers and buyouts. But that’s not the only story…

Over the past few years, there have been massive technological advances, like the sequencing of the genome coupled with data-crunching supercomputers, that have accelerated learning in biology. These great leaps forward have lead to a surge in productivity and innovation.

You are just starting to see this with a host of new FDA-approved drugs. In 2013, 27 new drugs were approved, with several designated as breakthrough therapies. In 2012, 39 new drugs were approved — the most in 15 years.

While some companies launch the drugs themselves and become profitable, like Regeneron (NASDAQ: REGN), other get bought out by big pharma. Companies like Omthera, which is working on omega-3 fish oil products, was bought out by AstraZeneca last summer.

According to Bloomberg, the M&As are ramping up:

“Deal activity has already taken off in 2014. This week, General Electric Co. (GE) agreed to pay about $1.06 billion for medical equipment businesses from Thermo Fisher Scientific Inc. (TMO), while Forest Laboratories Inc. (FRX) said it will buy Aptalis Pharma for $2.9 billion to add treatments for gastrointestinal ailments and cystic fibrosis. New York-based Forest’s stock rose 18 percent, the most in at least 33 years.”

It’s unusual that shares in the company doing the buying go up. That says something about this market.

Can it continue? Sure it can. iShares Biotechnology (NASDAQ: IBB) has a P/E of 26. That’s a little rich, but it’s nothing like 15 years ago, when the P/Es were in the triple digits.

Judging from the share action, the speculators are back. And for those willing to take the risk, these stocks still have room to run.

Until next time,

Christian DeHaemer Signature

Christian DeHaemer

follow basicCheck us out on YouTube!

Christian is the founder of Bull and Bust Report and an editor at Energy and Capital. For more on Christian, see his editor’s page.

Angel Pub Investor Club Discord - Chat Now