Biotechnology is among the most exciting and lucrative sectors for investors. Perhaps the only market that provides greater volatility and profit potential is the derivatives market.
With prices driven at a breakneck pace by research and FDA approvals, today’s golden company can be tomorrow’s stock market disaster. But the opposite has also proven to be true. Sometimes the forgotten dogs of the biotech world can quickly morph into great long-term investments.
I have identified 3 biotech companies that have fallen on hard times, but have recently experienced a rash of buying by large stock market players. Make no mistake, these stocks are very risky, but they have tremendous upside potential, and clearly I am not the only one who thinks so.
What Caused The 2016 Biotech Bear Market?
If you own biotech stocks, you know that 2016 was a difficult year for the segment. Riding high from averaging 34% annual returns from 2012 to 2015, the biotechnology index gave up 16% in 2016. And the 16% loss included a substantial recovery from the devastating plunge of 28% in January 2016.
The primary cause of the 2016 biotech bear market was shifting investor sentiment. Fear of new regulations that could force prices lower sent worried investors onto the sidelines.
In addition, the biotech plunge occurred simultaneously as the FDA drug approval rate dropped from 38 annually in 2012 to just 22 in 2015. With fewer blockbuster approvals hitting the market, biotech hype faded.
The good news is that the biotech sector is rebounding from this rout. Investors entered the year with much lower expectations, an approach that so far has worked in their favor. The sector has bounced higher by around 20% and appears primed to continue its winning ways this year.
Big Investors Following The Big Money
There are funds and large individual speculators who specialize in the biotech space. These big investors conduct extensive due diligence and vetting, far beyond the capacity of the average individual. Tremendous value exists in riding the coattails of these experts.
Mark Lampert’s BVF Partners L.P., an approximately $1 billion, San Francisco-based private investment partnership, is among the leading names in the biotech investment world. BVF specializes in fundamental-driven public biotechnology investments. The fund recently revealed substantial holdings in three beat-down biotech stocks.
These stocks look positively frightening to average investors.
But obviously BVF Partners does not share the negative sentiment.
Make no mistake, these stocks can continue to move lower, but BVF sees enough upside potential to be a major investor.
Here are three places where BVF is placing it’s bets this year: