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 145,000-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 25%
• 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. You can run this screen yourself -- remember, though, that your results may differ from ours as the market changes.

Data and star rankings from CAPS as of Nov. 20.

ISTA Pharmaceuticals
Small-cap ISTA Pharmaceuticals competes in the ophthalmic product market against larger peers like Allergan, Alcon, and Novartis (NYSE:NVS). Despite its David vs. Goliath position, some CAPS members like the recent quarterly results reported by ISTA, which shows that it's making progress toward its first year of breakeven operating income. Its third-quarter revenue grew 47% year-over-year and the company generated positive free cash flow. Its Xibrom and Istalol products have performed well and many investors are excited about the recent FDA approval for its ocular itching treatment Bepreve and see significant revenue potential for the product. In CAPS, 92% of the 76 members rating ISTA Pharmaceuticals expect it to outperform the market.

China-Biotics
While just a fraction of the size of large biotechs such as Celgene (NASDAQ:CELG) and Amgen (NASDAQ:AMGN) and much less well known, China-Biotics has caught the eye of investors and nearly 200 CAPS members who see potential in the little-known Chinese company. The company makes live microbial nutritional supplements sold over the counter at pharmacies and supermarkets in a growing Chinese market. It had 49% net sales growth in its fiscal second quarter, with operating income nearly doubling compared to a year ago. It sees increasing demand for its products, which it expects will generate a strong increase in revenue and is beefing up its manufacturing capacity to meet demand. The vast majority of CAPS members rating China-Biotics, 98% of the 186, expect it to outperform the market.

Myriad Genetics
Although Myriad Genetics' recent quarterly earnings didn't top analyst estimates like they did last quarter, it still pulled in 22% higher revenue from molecular diagnostics in its fiscal first quarter with earnings that doubled over last year. The weak economy has been weighing on sales of its diagnostic tests, but it's been seeing stronger demand lately. It spun off its drug business Myriad Pharmaceuticals recently, leaving it more focused on diagnostics compared with others like Genzyme (NASDAQ:GENZ) or Life Technologies, and CAPS members like the potential of the leaner company. The company boosted its cash and equivalents balance to about $417 million in the quarter and isn't weighed down by any debt. Today, 93% of the 444 CAPS members rating Myriad Genetics are bullish.

Let 145,000 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.