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Following several mergers and acquisitions, many 52-week highs and the release of various COVID-19 vaccines, the biotech market is booming. The dire need for a coronavirus vaccine provided a new race for many biotech companies who were experiencing relatively sideways market pre-coronavirus. Join us while we review how to identify the best-performing biotech stocks during this bull market. Following this, we count down some biotech stocks to watch in the future.
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Biotech stocks are the shares of biological technology companies, meaning that the foundations for these businesses meet somewhere between technology and biology. In simple terms, biotech companies harness technology to create drugs from biological organisms. Unlike pharmaceutical companies, which develop drugs from chemical processes, biotech companies focus exclusively on the extraction and manipulation of biological organisms.
Usually, newly developed biotech products are required to pass a lengthy testing process, meaning biotech companies can be speculative plays. A drug that has been developed successfully still may take years to impact the company’s profitability. However, the race for a COVID-19 vaccine changed how efficient this process runs, giving companies more access to means of profitability.
As biotech stocks are fundamentally different from most shares, traditional valuation methods may provide less insight into the value of a biotech stock. When looking to find the best value biotech stocks, variables such as research and development (R&D) spend, amount of funding and the type of medicine being developed can provide more insight than a company’s P/E ratio, for example.
Below are some examples of what to look for when performing company analysis on biotech stocks:
When looking for biotech stocks to complement your portfolio, a key metric is the R&D spend as a percentage of total sales. This metric directly shows how much of a company’s sales are being reinvested into further research. Biotech stocks are highly innovative and without substantial R&D spend may be left behind by competitors.
As the development of a biotech product can take years, investors need to make sure a company has adequate funding. Several mergers and acquisitions have occurred recently in the biotech market, and this works by combining resources towards a common goal. A highly successful biotech company should have several funding options in process and still have enough cash to acquire smaller companies along the way.
Certain drugs can generate more equity compared to others, depending on the cost of the biotech product, the number of cases and other variables. Vaccinations against COVID-19, for example, would be a very lucrative development; however, drugs that treat a small number of patients with a rare disease may generate less equity.
The following biotech stocks have been at the forefront of the biotech bull market and act as examples of what you could look for when speculating on biotech stocks. These companies are either highly innovative, have a consistent track record of delivering profitability or have some very interesting drugs in testing phases. Open a spread betting or CFD trading account to get started.
Bristol-Myers Squibb is often seen as a pharmaceutical stock as opposed to a biotech stock. However, given that BMY acquired the biotech company Celegne, it has earned itself a spot on the biotech stocks list. Following its acquisition, Bristol Myers Squibb has gained exposure to a wide array of drugs that could treat conditions such as blood cancer to multiple sclerosis. Additional to the diversified streams of income from the big pharma stock, it also boasts a dividend of 3%.
Market cap: $143.84bn
52-wk high: $67.96
52-wk low: $54.07
P/E ratio: 10.08
Moderna was one of the first biotech companies to enter clinical trials with its COVID-19 vaccine and it was released to the general UK public in January 2021, the third vaccine to do so. Besides the company’s triumphant development with a coronavirus vaccine, Moderna does not exclusively rely on this and has several other hopeful phase two drugs that it plans to move forward with.
Market cap: $79.41bn
52-wk high: $200.00
52-wk low: $54.21
P/E ratio: 132.55
The SPDR S&P Biotech ETF is an exchange-traded fund that aims to provide exposure to the constituents of the S&P 500 stock index that specialise in the biotech industry. Companies included in the fund are Novavax, Invitae, Inovio Pharmaceuticals, OPKO Health and Arrowhead Pharmaceuticals.
Net assets: $7.54bn
52-wk high: $174.79
52-wk low: $;97.15
P/E ratio: 11.11
Founded in 2018 and headquartered in Cambridge Massachusetts, Verve Therapeutics Inc is a biotechnology company with a focus on preventing heart disease. The company was founded by the world's leading experts in cardiovascular medicine and gene editing and human genetics.
Market cap: $1.47bn
52-wk high: $78
52-week low: $10.70
P/E ratio: -3.11
It is possible to invest in the above biotech stocks and ETFs through the traditional share dealing process, where investors purchase the asset upfront and take a buy and hold approach. This also requires you to take ownership of the asset.
However, some investors may prefer the concept of an online trading platform to speculate on the security’s price movements without taking direct ownership, such as our Next Generation platform. Using leverage, you can spread bet or trade CFDs to pay a percentage of the full trade amount to open a position. This increased exposure magnifies any profits or losses that you make. Additionally, you can either go long and ‘buy’ your selected biotech stock or go short and ‘sell’, speculating on both sides of the market.
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Trading on biotechnology stocks can be a risky investment, due to the often volatile or unpredictable nature of these shares. When looking for a biotechnology share to add to your trading portfolio, you should consider your risk tolerance, wider portfolio and timeline that you plan to trade on. Consult our risk-management guide to see how risk-management controls, such as stop-loss orders, could be implemented.
Disclaimer: CMC Markets is an execution-only service provider. The material (whether or not it states any opinions) is for general information purposes only, and does not take into account your personal circumstances or objectives. Nothing in this material is (or should be considered to be) financial, investment or other advice on which reliance should be placed. No opinion given in the material constitutes a recommendation by CMC Markets or the author that any particular investment, security, transaction or investment strategy is suitable for any specific person. The material has not been prepared in accordance with legal requirements designed to promote the independence of investment research. Although we are not specifically prevented from dealing before providing this material, we do not seek to take advantage of the material prior to its dissemination.
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