5 Best Biotech Stocks to Buy for 2021

Biotech Stocks that are about to Change Life as We Know it!

Biotech stocks were one of the hottest stock groups last year with the SPDR S&P Biotech ETF, ticker XBI, up 42% on the year and producing a 15% annual return since 2006.

The drive for a COVID vaccine combined with new technologies in gene editing and medicine has led to a boom in development and interest in these companies. Private funding for life sciences companies hit $16.5 billion in the first half alone with more than 44 funding rounds of $100 million or more…well over anything we’ve seen in the past few years.

And that renewed interest, the investor inflows into these companies, makes me think the group can just keep running. More investor money means more research and development, the lifeblood of biotech stocks.

With the momentum we’ve seen this year and the speed of change, over the next 10 years, we could see medical breakthroughs we’ve only dreamed about in the past.

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How to Invest in Biotech Stocks

The problem for investors in biotech stocks though has always been the complexity in these stocks? There is so much to study here from the market size on demand for specific diseases to research pipelines and the FDA process.

How do you analyze these stocks without a PhD?

There are biotech funds like the XBI, which holds 170 companies in the theme, and while I like looking at the fund for ideas…for example, you can go to the fund’s website, scroll down to holdings and get a list of all the stocks held.

But it’s not the best way to invest. Funds like the SPDR S&P Biotech ETF or the iShares Nasdaq Biotech, ticker IBB, they invest passively in every company in the index so not really analyzing each for the best potential returns.

So in this video, I want to walk you through how to invest in biotech stocks, from narrowing your list and analysis to an investment strategy. Then I’ll reveal the five biotech stocks I’m watching for 2021.

We’ll be using stockcard.io to start our search. I love the search feature here, just type in your theme, for example biotech, and it drops down with not only individual companies but also collections of stocks around that theme. Another group to check out here, gene therapy, and clicking on the collection shows us 52 companies in that gene editing segment of biotech.

From there, we can click on any of these and the platform analyzes each stock within these five cards; growth, operations, return, valuation and market sentiment.

Sign up on Stockcard for free and make stock-picking easy with the research tool I use! Use promo code: bowtienation for an exclusive discount!

How to Find the Best Biotech Stocks to Buy

When you’re looking for the best biotech stocks; you can also screen for smaller or mid-size companies usually under $10 billion in market cap. Now there’s a tradeoff here that I think you need to balance in your biotech portfolio.

You want a mix of the smaller startups, those newer biotech companies with an innovative approach and some breakthrough ideas, but you also want to look for companies with more than just one idea in its pipeline.

This is a problem investors in BioNTech, ticker BNTX, the partner in Pfizer’s COVID vaccine, are facing right now. The shares shot up 265% on that partnership and through the early December approval but are now down 35% because there just isn’t much left in the pipeline for the company.

You also want to take a look at the company’s balance sheet to make sure it has enough cash to survive while it develops those blockbuster products. Most small biotech companies are going to have more cash on the balance sheet than debt and that’s a good sign but you have to compare that with things like their cash outflows for research and development to make sure they can survive the years of R&D.

Now before we get to those five biotech stocks on our list, I want to share an investing strategy for the group because these are extremely volatile stocks. It’s not uncommon for a biotech stock to move by ten- or fifteen-percent or more in a single day…and that’s higher or lower.

So you need to put together a portfolio of these and treat it like your penny stocks portfolio. Those of you in the Bow Tie Nation know that I’m not just investing in one or two penny stocks for those high potential returns, I’m investing in seven to ten stocks.

And the nature of these companies, startup-type companies with everything riding on one product or a couple of drug therapies in the pipeline, you’re going to see those early-stage returns. You’re going to see two or three of the stocks flop and be dead money at best. Maybe another few will produce decent returns but it’s the one or two that go on to multiply your money five or 10-times that takes your portfolio return to twenty and thirty-percent a year.

So you need that portfolio view of biotech stocks, holding a group of individual names and giving them the time to develop those breakthroughs. But I also like adding an ETF or an index for that core-satellite strategy. This is where you buy a fund in the theme, so maybe one of the two biotech funds, for broad exposure and to benefit from the general upside. Then you use maybe half of your money to buy those individual stocks for the extra upside on the best picks.

5 Biotech Stocks to Watch in 2021

Our first biotech stock and one of the most popular, CRISPR Therapeutics, ticker CRSP.

CRISPR is the leading gene editing company right now with several therapies targeting immuno-oncology as well as regenerative medicine and rare diseases. Basically, Crispr could make a LOT of drugs obsolete by editing patients genes as a therapy rather than treating it forever.

So you can imagine the potential here, not just for the specific therapies the company is working on now but just the use of this technology and its broader application.

Crispr has 10 therapies in the pipeline, five of which are in clinical trials already, so we’re potentially just a couple of years from approval. It’s immune-oncology therapies are wholly owned while it’s partnered with Vertex for others.

The company has no debt and $1.37 billion in balance sheet cash which is well above short-term funding. Crispr spends about $233 million a year in R&D expense so several years of cash runway there.

The average analyst estimate here is for $136 a share which is quite a bit lower than the current price and all the biotech stocks sold off hard last week. I think this is one though that you buy in, maybe buying half now and waiting a few months to invest the rest of your money in the stock, hold it for three to five years and you’ll have 10X your money. That’s the kind of potential in this company!

Next here is $6.8 billion Iovance Biotherapeutics, ticker IOVA, a biotech focused on immune-oncology, easily one of the highest margin segments in biotech.

The company announced in August that I had completed enrollment in its cervical cancer study for LN-145, a pivotal program for the company. It also reported data on three other programs during the quarter including its melanoma program for lifileucel.

Iovance is constructing a cell therapy center at the Navy Yard in Philadelphia and expects commercial manufacturing to start in 2022, so we should get more revenue certainty through this year.

The company has $772 million in balance sheet cash against no debt and about $212 million in annual R&D expenses. Add in approximately $56 million in other operating costs and this one has about three years’ worth of cash flexibility.

Exact Sciences, ticker EXAS, is further along than most of the companies and already booking sales.

The company is in the diagnostics space screening for cancers through a DNA and protein-based test that can detect multiple types of cancers in one test. It’s partnered with the Mayo Clinic and Johns Hopkins and estimates the total addressable market at over $25 billion.

The company has booked three years’ of sales growth and reported an 87% year-over-year increase in Q3 revenue. Over the last four quarters, it’s booked over $1.2 billion in sales from lab services and other revenue.

Contrasting that, the financial position is a little weaker here. The company has $806 million in balance sheet cash against $85 million in debt but spends roughly $1.6 billion a year in total operating costs. Not a pristine financial picture but it’s growing revenue so fast that I think this one can show profitable earnings within the next year or two.

Exact Sciences is one of the few in biotech though that hasn’t zoomed past analyst price targets though. The shares were up 38% last year but an average analyst target of $157 a share is still a 20% upside from here.

Another gene editing biotech stock, Cellectis, ticker CLLS, with a focus on immunotherapies for cancer.

This one isn’t quite as far along as Crispr in its therapies but is targeting different needs so I don’t think its necessarily an either-or decision. Cellectis has six therapies in the pipeline with key developments within the next year.

In just two target therapies with its Allogene partnership, the company could book up to $2.8 billion in development and sales milestones which is HUGE for a company that booked all of $15 million in total 2019 sales.

The company has increased revenue by 20% over the last year and has that strong balance sheet we’re looking for in biotech. Balance sheet cash of $360 million is more than enough to cover the $126 million in annual operating costs, including $94 million in R&D expense. The company has no debt though it does have $46 million in capital lease obligations, but still a great financial position.

Shares were up 68% last year to right around the average target of $29 per share but again, this is one that I think grows into those returns over the next few years for a solid double-digit payoff.

Another biotech name that got slammed last week but could be a buying opportunity, Twist BioScience Corporation, ticker TWST.

Shares were up 750% to last year’s peak so a little profit-taking is to be expected and probably more on the way. The company’s synthetic silicon-based DNA technology is completely disruptive though and this one should keep running after it’s had time to cool off.

The company grew revenue by 67% this year to $90 million after doubling it in 2019 and has over $290 million in balance sheet cash. That’s more than enough to cover annual operating costs of $146 million and the $26 million in debt and lease obligations.

The average analyst estimate for $112 per share is still a little below the current price here so maybe you watch this one for a while to see if you can get a better price but definitely a solid future in the biotech space.

Sign up on Stockcard for free and make stock-picking easy with the research tool I use! Use promo code: bowtienation for an exclusive discount!

Biotech stocks are expensive heading into 2021 but even if stock prices come down a little, these are the investments you want in your portfolio over the next decade. These companies are going to change life as we know it and that means outsized returns for investors.

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