May 13, 2015
Opinion: 15 biotech stocks to put on your watch list now
By Michael Brush
There’s nothing like a quick 120% gain in a stock to boost your portfolio’s returns.
That’s exactly what Synageva BioPharma GEVA, +0.60% investors got last week with the announced takeover of this little-known company. And that kept the biotech buyout frenzy alive.
If you missed out, don’t worry. Biotech buyout fever is going to continue. But be careful: You need to pick the right companies and hold them for years.
Here are two reasons biotech buyouts will continue:
* A lot of big pharmaceutical companies have done a poor job of developing their own drugs. Many of their blockbusters are rolling off patent. They need to replenish their pipelines. “The easiest way is to go out and buy something,†says Connor Browne, a portfolio manager at Thornburg Value Fund TVAFX, -0.26%
* Debt is cheap, so buyers have a lot of firepower, says Mindy Perry, a Manulife Asset Management portfolio manager who specializes in health care. There’s so much interest-rate-fueled buying power available, it’s created “corporate quantitative easing,†says Ed Yardeni of Yardeni Research.
All of this may have you wondering: Which biotech companies might get bought out next?
To round up potential targets and some of the best techniques for identifying them, I recently spoke to several biotech experts. Their short list includes Incyte INCY, Seattle Genetics SGEN, Juno Therapeutics JUNO, Puma Biotechnology PBYI, and 10 other names you will find below.
Fair disclosure: I let analysts decide which stocks to suggest, but I’ve also suggested many of those companies over the years in my stock letter Brush Up on Stocks, and I have held positions in many of them for years. (My holdings are listed at the bottom of this column, and I don’t intend to sell them any time soon.)
Let’s take a look.
Go with quality
Medical Technology Stock Letter editor John McCamant has some great advice right off the bat. Yes, it’s nice to see your portfolio get a jolt by owning buyout names. But buyout potential should never be the sole reason you purchase a biotech stock, or any stock. Instead, he suggests going with companies that have quality research platforms and solid management. These are the ones that are more likely to get bought out. If they don’t, well, you should do OK anyway, with quality names.
One of his favorites is Incyte, which has a drug called Jakafi for the treatment of rare blood cancers. It also has a broad pipeline of potential cancer therapies. “Their pipeline alone would be transformative for any big pharma company,†says McCamant.