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Biotech Stocks: Get Your Huge Potential Here

By Selena Maranjian – Nov 4, 2013 at 1:08PM

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It's win-win when these companies treat diseases and make a lot of money.

Exchange-traded funds offer a convenient way to invest in sectors or niches that interest you. If you'd like to add some biotech stocks to your portfolio but don't have the time or expertise to hand-pick a few, the First Trust NYSE Arca Biotech Index Fund (FBT -0.95%) could save you a lot of trouble. Instead of trying to figure out which biotech stocks will perform best, you can use this ETF to invest in lots of them simultaneously.

The basics
ETFs often sport lower expense ratios than their mutual-fund cousins. This ETF, focused on biotech stocks, sports a relatively low expense ratio -- an annual fee -- of 0.6%.

This biotech stocks ETF has trounced the world market over the past three and five years. As with most investments, of course, we can't expect outstanding performances in every quarter or year. Investors with conviction need to wait for their holdings to deliver.

Why biotech stocks?
The biotechnology arena is particularly promising for investors due to our planet's growing and aging population, which will require more medical care over time. Biotech stocks are not without risks, though, as many new treatments are costly to develop and don't always clear FDA hurdles.

More than a handful of biotech stocks had strong performances over the past year. Pharmacyclics (NASDAQ: PCYC) surged 113%, with investors optimistic about its new drug application for leukemia-treating ibrutinib, which is due to get a decision from the FDA in February. (The drug also tackles a form of non-Hodgkin's lymphoma.) Some estimate that the drug, which has been extremely effective in trials, could become one of the top-selling treatments of all time, though that's still a guess at this point. There's a lot of potential in Pharmacyclics, and it could keep climbing higher, but there's risk, too, as its key drug is not yet approved and selling.

Gilead Sciences (GILD 3.82%), up 112%, looks like it might be first to market with an all-oral hepatitis-C treatment, sofosbuvir, which has delivered strong results and received a favorable review from the FDA. Gilead is known for its success with HIV drugs and is tackling non-Hodgkin's lymphoma while also addressing heart disease with its cardiovascular drugs Letairis and Ranexa.

BioMarin Pharmaceutical (BMRN -0.57%)has jumped 67%, and though it has an attractive pipeline and has been suggested as an appealing buyout target, its recent price seems a bit rich for some. Bulls are hopeful about its Vimizim drug, which targets Morquio A syndrome and is getting close to an FDA approval decision, as well as its cancer-fighting PARP inhibitor, BMN-673. BioMarin Pharmaceutical's losses widened in its third quarter, but revenue grew 7%.

Cepheid (NASDAQ: CPHD), specializing in molecular diagnostics (referred to by those in the know as "MDx"), popped 38%. In its third quarter, the company posted a much smaller loss than it did in the year before, and revenue rose 24%. Management upped projections, too. Cepheid received FDA approval in August for a TB test.

The big picture
If you're interested in adding some biotech stocks to your portfolio, consider doing so via an ETF. A well-chosen ETF can grant you instant diversification across any industry or group of companies and make investing in it -- and profiting from it -- that much easier.

Longtime Fool contributor Selena Maranjian, whom you can follow on Twitter, owns shares of Gilead Sciences. The Motley Fool recommends BioMarin Pharmaceutical and Gilead Sciences. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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