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Biotech stocks represent a peculiar conundrum. On one hand, they are scientifically the most exciting investment sector. Successes here could spark revolutionary therapies that could end or at least alleviate human suffering. But the industry is heavily marked with failures and agonizing disappointments.
Unfortunately, the biotech sector can be somewhat binary. Successful clinical trials could radically change a company's fortune overnight. The opposite is also true, but in a much more unpleasant manner. Even the industry's alpha dogs are not completely immune to the feast or famine cycle.
Thus, creating a list of biotech stocks to buy will always be a tough challenge. What I've done here is provide four companies: two are well-known, stable commodities, while the other half are binary bets. If their drug pipeline exceeds expectations, it's off to the races.
Of course, that's a big "if." But if you've got the stomach to handle some market volatility, here are four biotech stocks to consider.
Biotech Stocks to Buy: Grifols S A/S ADR
One of the top-three plasma producers in the world, Grifols S A/S ADR (NASDAQ: GRFS ) occupies a lofty status among biotech stocks. According to the company's website, plasma is the liquid portion of human blood. Though 92% of plasma is plain water, the remaining portion contains essential proteins. Without plasma, you cannot have life.
However, plasma represents much more than mere sustenance. Cutting-edge medical research uses proteins found in plasma to formulate therapies for specific diseases. To maintain an adequate supply, Grifols has plasma-donor centers located throughout the world. In the U.S. alone, the company has 150 such facilities. Thus, an investment in GRFS stock offers you exposure to one of the most exciting biotech networks available.
But what makes Grifols particularly compelling is its rock-solid fundamentals. Both its operating and net margins are among the biotech industry's leaders. Moreover, Grifols had an impressive outing in 2017, improving its revenue haul against the prior year by nearly 20%. It also maintains a stable balance sheet, as well as consistently positive free cash flow.
In the markets, GRFS stock hasn't necessarily performed well. However, intense fears about the China trade war may have negatively impacted shares.
Now that those fears are gone for the interim, GRFS stock again looks attractive.
Biotech Stocks to Buy: Enanta Pharmaceuticals Inc
Here's a "Captain Obvious" statement: all diseases are bad. However, some are definitely worse than others. While mainstream society obsesses with heart-related problems (i.e., initiatives for lowering blood pressure through proper diets), an organ that you cannot afford to ignore is your liver.
According to WebMD.com, "The liver's main job is to filter the blood coming from the digestive tract, before passing it to the rest of the body. The liver also detoxifies chemicals and metabolizes drugs." Lose your liver, and you'll lose your life. Remember - you have two kidneys, but only one liver.
That's why I'm very interested in Enanta Pharmaceuticals Inc (NASDAQ: ENTA ). Through an investment in ENTA stock, you gain exposure to a biotech firm specializing in viral infections and liver diseases.
Specifically, Enanta developed a liver-disease drug called EDP-305. This therapy addresses the two most common causes of liver disease: non-alcoholic steatohepatitis and non-alcoholic fatty liver disease. Recently, EDP-305 completed its Phase 1 clinical trial , and it is currently undergoing Phase 2.
Similar to Grifols, solid fundamentals back ENTA stock. In fact, Enanta's profitability margins are even more impressive than Grifols. It put these metrics to good use, delivering a solid result for its second quarter 2018 earnings report. Furthermore, the company has very minimal debt levels relative to its cash holdings.
The one drawback to ENTA stock is that everyone else loves it. On a year-to-date basis, shares are up nearly 86%.
Still, if you don't want to risk buying one of the many flash-in-the-pan biotech stocks, ENTA is a good bet.
Biotech Stocks to Buy: La Jolla Pharmaceutical Company
Moving on to the more speculative side of biotech stocks, we have La Jolla Pharmaceutical Company (NASDAQ: LJPC ). Headquartered just east of the renowned University of California, San Diego campus, LJPC stock has more than just a top location as its selling point.
To their credit, La Jolla Pharmaceutical takes on the ultimate challenge: "to significantly improve outcomes in patients suffering from life-threatening diseases ." That's both the potential and the risk. Should the company prove successful, LJPC stock will skyrocket to the moon. If not, it was nice knowing you.
However, La Jolla Pharmaceutical isn't completely speculative. The biotech firm has two products in the research pipeline: LJPC-401 and LJPC-501. The former address excessive iron accumulation, which causes end-stage organ damage. The latter drug boosts blood pressure in patients who are hypotensive despite taking therapies to address the problem.
On another positive front, the financials for LJPC stock aren't completely terrible. For example, the company boasts zero debt, and it has a relatively strong balance sheet. That said, everything else is a crapshoot.
For LJPC stock, everything comes down to its pipeline. But if you want something with exceptional upside potential, this is it.
Biotech Stocks to Buy: Syros Pharmaceuticals Inc
Syros Pharmaceuticals Inc (NASDAQ: SYRS ) engages in one of the most exciting biotech sectors: gene therapy . As groundbreaking scientific research has proven, human genes can be switched on or off. This in turn impacts what functions those genes perform. If genes are expressed at the wrong time, or in the wrong frequencies, diseases can occur.
Syros actively develops drugs that control gene expression. If successful, the company could spark a paradigm-shift in the biotech industry; hence, SYRS stock would inevitably lift off into orbit. However, if Syros' clinical trials fail, the entire investment could evaporate.
As things stand, don't look to the financials to decide whether you should buy SYRS stock. Outside of a relatively stable balance sheet, things don't look great on paper. Nominally, Syros has very little sales (just over $1 million last year). It has also steadily widened its net-income losses over the past four years. And as you can imagine, free cash flow is consistently negative, although it pared losses in its most recent quarter.
For SYRS stock, it honestly comes down to its drug pipeline. But given the direction of biotech firms towards gene therapy, Syros might be worth a cautious shot.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.Compare Brokers
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