Dream Stocks for Biotech Investors

Investors are always hunting for the next big stock -- the dream stock whose price increases several times over when the market finally discovers it. It's easy to look back and discover the 10 best stocks of the past decade. But I'm more interested in the tools that can help me evaluate tomorrow's greatest companies.

Motley Fool CAPS offers a variety of resources to aid Fools in finding tomorrow's leaders. Our 170,000-member community is full of investors helping each other beat the market.

We'll enlist CAPS to screen for biotech companies, then get the story behind some of its more highly rated stocks. CAPS' nifty screener will help us find stocks with:

  • A market cap of at least $100 million.
  • A three-year revenue growth rate of at least 15%.
  • A price-to-earnings ratio of less than 25.

Then we'll tap the collective intelligence of our CAPS members to see whether these companies present real opportunities -- or whether the numbers fail to tell the true story.

Opinions with the numbers
Below is a sample of stocks our screen returned.

Company

Revenue Growth Rate, Past 3 Years

CAPS Rating (out of 5)

ViroPharma (Nasdaq: VPHM  )

18.9%

*****

Santarus (Nasdaq: SNTS  )

28.9%

***

Biogen Idec (Nasdaq: BIIB  )

25.6%

***

Source: Motley Fool CAPS as of Sept. 17.

ViroPharma
Orphan drug Cinryze has been a hit for Viropharma lately, and with help from strong sales of Vancocin, the company was able to report a 78% jump in second-quarter earnings. ViroPharma also boasted of its record net product sales and upped the lower end of its guidance for Cinryze sales. Despite the strong gains the stock has already seen over the past year, many CAPS members like the company's strong free cash flow and look for the momentum to continue for the small biotech company -- despite that fact that a significant number of short sellers are in the stock.  A strong majority -- 97% of the 1,259 CAPS members rating ViroPharma -- expect the stock to outperform the broader market.

Santarus
Santarus has had a tough run in recent months -- the company has been reeling from Par Pharmaceutical's launch of generic Zegerid and partner Depomed's (Nasdaq: DEPO  ) recall of certain lots of Glumetza. But not all investors have lost hope, and some CAPS members see significant upside in the beaten-down shares. The company is restructuring to cut costs and has launched an OTC version of Zegerid to go up against other heartburn meds like Procter & Gamble's (NYSE: PG  ) Prilosec OTC. It is also making moves to boost its pipeline by buying the rights to make FDA-approved diabetes drug Cycloset with plans to launch in November, and by picking up a couple of biologics through a license agreement and an acquisition. A lot of CAPS members think it's a good strategy, as 92% of the 145 members rating Santarus hold a bullish call on the stock today.

Biogen Idec
Biogen Idec has continued to see strong sales of its blockbuster multiple sclerosis drug Tysabri that it sells with Elan (NYSE: ELN  ) , and the company saw an uptick in sales of its other main revenue drivers, Rituxan and Avonex, in the second quarter as well. It's also been looking to beef up a weak pipeline with a couple of development deals -- it recently licensed a Lou Gehrig's disease drug candidate from Knopp Neurosciences at a good price and is tossing a little money into some emerging technologies by investing alongside GlaxoSmithKline (NYSE: GSK  ) in stem-cell drug discovery company iPierian. The potential of Biogen's pipeline has only been enough for the stock to garner an average three-star rating in CAPS, though, with about 92% of the 684 members rating Biogen Idec believing it will outperform the market averages.

Let 170,000 members be the jury
The collective wisdom of a huge pool of investors can help give context to a page of numbers from a stock screen. But individual investors are still the best judges of what to do with their own money. Fools should always perform their own due diligence.

Happily, it's easy to chime in with your own opinion. If you agree that these companies present dream opportunities -- or see more of a nightmare instead -- simply scroll down and add your thoughts in the comments box.

The Motley Fool Stock Advisor service looks for companies with strong management poised to beat the market over the long haul. To see all the stocks that have helped Tom and David Gardner beat the market by 68 points on average, take a free 30-day trial.

Fool contributor Dave Mock dreams of stocks and sugarplum fairies, but not together. He owns no shares of companies mentioned here. Elan is a Rule Breakers selection. GlaxoSmithKline is a Global Gains pick. Procter & Gamble is an Income Investor selection. The Fool owns shares of and has written covered calls on Procter & Gamble. The Fool owns shares of GlaxoSmithKline.

True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Fool's disclosure policy screens the good, the bad and the ugly.


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