Some traders believe that looking at the performance of biotech stocks is one of the best ways to judge what type of market we are in. When we see money flowing into that sector, it tells us that institutional investors are in “risk-on” mode, since biotech stocks are notorious for their volatility. That’s why it's nice to see some money start to flow back into biotech stocks this week, as the sector got a big boost from Biogen (NASDAQ:BIIB)’s news that the FDA has approved the company’s Alzheimer’s drug. While we don’t know if this is the start of a new trend for the sector, there are still plenty of great reasons to be looking at biotech for opportunities at this time.
Many of the top biotech stocks have been facing selling pressure over the last few months, which means that their valuations are currently depressed. There are also several companies that have potentially huge catalysts coming up that could really help the sector get back to its best. While adding significant exposure to biotech stocks is not recommended for risk-averse investors, it’s arguably one of the more intriguing sectors of the market to look at right now based on a risk-to-reward basis. Let’s take a look at 3 of the best biotech stocks to buy now.
1. Bristol-Meyers Squibb
Biotech companies can range from extremely speculative small-cap companies to established large-cap giants with reliable sales and impressive pipelines. Bristol-Meyers Squibb falls under the latter category, which is why it's one of the best biotech stocks to consider adding at this time. As a global biopharmaceutical firm offering a broad array of conventional prescription drugs and advanced biologic treatments, it’s a company that offers a nice combination of upside potential and consistent earnings, which is certainly attractive in such a volatile sector.
With top cancer drugs such as Revlimid, Opdivo, and Yervoy, it’s clear that this company has developed a strong portfolio of drugs that can help to support the stock’s 3.03% dividend yield. There’s also a catalyst to look out for later this summer, as the FDA is expected to decide on using Opdivo as adjuvant therapy in patients with muscle-invasive urothelial carcinoma in September. This decision is big as it can lead to more sales if Opdivo is able to help people with different cancer indications. If you are interested in a biotech stock with a strong pipeline, a history of savvy acquisitions, and an attractive dividend payout, look no further than Bristol-Meyers Squibb.
2. Vertex Pharmaceuticals
For a reminder of the risks associated with biotech investing, take a look at what happened to Vertex Pharmaceuticals (NASDAQ:VRTX) last October, when the company discontinued the development of a promising drug. The stock lost billions in market cap that month, but has since stabilized and could be a great buying opportunity at this time. Vertex is a biotechnology company that is focused on developing and commercializing therapies for the treatment of cystic fibrosis. The company has limited competition in that space, which means Vertex can rely on steady sales from its franchises of cystic fibrosis drugs for years to come. The company’s market opportunity is roughly 90% of the cystic fibrosis population, which confirms just how dominant of a position Vertex has created in cystic fibrosis treatments.
In Q1, the company reported strong earnings including product revenues of $1.72 billion, up 14% year-over-year. Vertex is also advancing clinical programs in six additional diseases beyond cystic fibrosis. Those could end up becoming growth drivers in the long term should they lead to promising results in areas like AAT deficiency and sickle cell disease. The FDA is also expected to rule on whether or not it will allow Vertex to use its drug Trikafta in children with cystic fibrosis ages 6 through 11 with certain mutations. This could be a positive catalyst for the stock and lead to more sales for the company, so keep an eye out for the ruling.
3. Johnson & Johnson
Finally, we have Johnson & Johnson (NYSE:JNJ), which is certainly one of the lowest-volatility biotech stocks out there. Johnson & Johnson is a global leader in the pharmaceutical, medical device, and consumer health care products industries and is worth adding for a few different reasons. First, the company’s pharmaceutical segment has some nice prospects in its pipeline, including 14 novel drug launches expected by the end of 2023. There’s also the fact that elective procedures should be on the uptick as the pandemic winds down, which will benefit the company’s medical devices segment.
Perhaps the best reason to add shares of Johnson & Johnson is due to the company’s incredible consistency with its dividend. Johnson & Johnson has delivered 57 consecutive years of dividend growth and is a great company to own for the long haul if you are interested in adding extra income to your portfolio. The stock currently offers a 2.57% dividend yield and is a fine choice for the more conservative biotech investors out there.