Investors in search of high-risk, high-reward investments can often find them among the top biotech stocks to buy.
Identifying worthwhile opportunities can be easier said than done when investing in biotech. Extensive due diligence is required. Therefore you may want to consider taking into account whether a particular biotech stock is in the “Green Zone.”
TradeSmith offers investors valuable tools for determining which stocks to watch. A good example is its Health Indicator feature. This comprehensive indicator provides an overall rating of a stock’s current health.
Using this metric, you can quickly find potential opportunities to explore. Broken down into three “zones” (green, yellow, and red), you’ll have a general idea about whether it’s best to be bullish, bearish, or neutral on a particular stock.
As you may have guessed, stocks in the “Green Zone” are performing well, with little indication that the trend is on the verge of shifting.
A stock in the “Yellow Zone” has corrected by more than 50% of its volatility quotient (VQ), a proprietary TradeSmith metric that helps measure a stock’s risk. When a stock in your portfolio goes from green to yellow, it may be a good time to reassess whether to maintain the position.
Stocks entering the “Red Zone” have corrected by more than their calculated volatility quotient. VQ can be useful when adding stop losses to your positions. View any move into the “Red Zone” as a warning sign to exit your position for now.
With this, let’s take a look at three biotech stocks to buy, each of which is currently in the “Green Zone.”
Vertex Pharmaceuticals (VRTX)
Vertex Pharmaceuticals (NASDAQ:VRTX) has been in the “Green Zone” for over a year. Shares in this commercial-stage biotech firm have steadily climbed higher since January, but the stock experienced a strong surge earlier this month, following the release of promising clinical trial results for VX-548, Vertex’s non-opioid pain pill, in the treatment of diabetic peripheral neuropathy.
According to Piper Sandler’s Christopher Raymond, VX-548 has strong “blockbuster potential,” with an estimated addressable market of $4 billion annually. Better yet for the future growth of VRTX stock, Vertex is also conducting trials to test the drug’s efficacy in treatment of other types of acute and chronic pain.
If successful, this alternative to traditional pain treatments could become a mega-blockbuster — as successful as Vertex’s portfolio of cystic fibrosis treatments. TradeSmith’s volatility quotient for VRTX is 20.31%, which makes it a medium-risk stock.
Amgen (AMGN)
Amgen (NASDAQ:AMGN) has been in the “Green Zone” for over a month. Shares have traded sideways for most of 2023. However, a growing number of market participants are now eyeing it as one of the biotech stocks to buy.
Why? Chalk it up to the company’s status as a potential “dark horse” contender in the fast-growing obesity drug market. Just this week, analysts at BMO Capital Markets upgraded their rating on AMGN stock to “overweight,” raising their price target to $326 per share.
What’s BMO’s rationale for the upgrade? If Amgen makes more progress with its obesity treatment candidates, the market could re-rate the stock to a valuation in line with pharma firms already profiting from this trend. TradeSmith’s volatility quotient for AMGN is 15.29%, which makes it a medium-risk stock.
Gilead Sciences (GILD)
Gilead Sciences (NASDAQ:GILD) has been in the “Green Zone” for over two weeks. While shares in this biopharma firm were on a tear earlier in December, enthusiasm has started to cool down in more recent trading days.
Still, don’t assume that a trend reversal is imminent for GILD stock. According to Gilead’s latest quarterly earnings release, the company is successfully countering declining sales of its Veklury Covid-19 treatment with increased sales of its oncology and HIV products.
Expected to report an earnings decline for 2023, sell-side consensus calls for GILD’s earnings to bounce back above 2022 levels next year. Some forecasts call for an even more substantial jump.
Trading for only 11.6 times earnings, a low valuation compared to similar biotech names, improved sentiment may help to gradually bridge this valuation gap. TradeSmith’s volatility quotient for GILD is 16.51%, which makes it a medium-risk stock.
The TradeSmith Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
