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Investors are always looking for the next home run stock -- the one that can catapult your portfolio from rags to riches in one fell swoop.
Besides tech stocks, there is one field that offers the best chance for success and failure alike: biotechnology.
Why so high-risk?
Biotechnology, although a very old and broad field, has become truly popular in the past 20 years or so. Scientists use living organisms to solve real-world problems, whether in engineering or medicine. More concretely, for biotech stocks, companies place enormous amounts of research and development, capital, and time into trying to find the next big solution, which, most of the time, comes in the form of a drug.
These stocks are so high-risk because the process of getting a successful drug to market is incredibly arduous; tons of money are spent developing the drug, and then obtaining the proper approvals through the FDA is a total gamble and often times takes years. In the meantime, the companies are burning cash, borrowing from lenders, and possibly diluting shareholders by issuing more shares.
However, the upside is absolutely enormous. Take a look at Amgen, one of the world's largest biotech companies. If you would have bought the company near the beginning of its infancy and held to today, you'd be looking at a gain of more than 17,000%! In the early 1980s, Amgen began using biotechnology to fight cancer, kidney disease, bone disease, and rheumatoid arthritis. With the company being wildly successful in developing a drug pipeline and bringing applications to the market, the stock skyrocketed, and investors never looked back.
Where's the next home run?
It's hard to say exactly where the next stellar stock will come from. Most biotech stocks, however, have a few traits in common. They're all extremely volatile, so they aren't for the faint of heart. They typically have very few, if any, revenues, and unless they've already gotten a drug to a marketer, their net incomes are usually negative. To find stocks that fit this criteria, I ran a screen and came up with seven stocks that all have very high betas, negative net incomes, and mostly pretty low or unimpressive CAPS ratings. The following seven stocks are worth checking out if you're an investor with an appetite for risk:
Net Income (TTM, in Millions)
CAPS Rating (out of 5)
|Cell Therapeutics (Nasdaq: CTICD )||6.29||(154.38)||**|
|Human Genome Sciences (Nasdaq: HGSI )||4.49||(316.35)||**|
|Dendreon (Nasdaq: DNDN )||3.94||(425.52)||**|
|Keryx Biopharmaceuticals (Nasdaq: KERX )||3.54||(22.84)||***|
|Zalicus (Nasdaq: ZLCS )||1.98||(42.65)||***|
|XOMA (Nasdaq: XOMA )||1.93||(53.31)||*|
|AEterna Zentaris (Nasdaq: AEZS )||1.45||(154.38)||*****|
Sources: Yahoo! Finance; CAPS proprietary data.
The foolish bottom line
Just because these stocks above have a certain set of characteristics, that doesn't mean they're going to be the next winner or loser; it just illustrates a common theme among biotech stocks, which have shown their ability in the past to either boom or bust. If any of the companies above piques your interest, I suggest you put them on your Watchlist to get the latest news and commentary. Who knows when one of them will strike it big? Add these to My Watchlist now.