Biotech Bubble Bust: 2 Ways to Win

Why Gilead and Biogen are the best ways to play the biotech meltdown.

Dave Williamson
Dave Williamson and Michael Douglass
Apr 15, 2014 at 2:08PM
Health Care

Are biotech stocks in a bubble? Is that bubble collapsing?

These are the two questions at the forefront of investors' minds. Given the tremendous run of biotech stocks, the iShares NASDAQ Biotechnology Index is up 80% over the last 2 years, it's easy to see why the bubble talk started. Mix in a tsunami of IPOs as new biotechs, some highly questionable, capitalize on easy money, and combine it with the relative ease of picking a multi-bagger stock -- it quickly adds up to irrational investor exuberance. 

Exuberance that can be fleeting. That same biotech index is down 15% in the last month, with some individual stocks getting hit considerably worse. However, whenever there is a sector wide sell-off, good stocks get indiscriminately dumped alongside the bad. This is when contrarian investors live the famous Warren Buffett saying of being "greedy when others are fearful," and find quality businesses with strong revenue and growth potential. 

On this edition of Market Checkup, Motley Fool health care analysts David Williamson and Michael Douglass discuss the fallout of the biotech collapse. They put on their best catcher's mitts and look to grab a few falling babies that have been thrown out with the biotech bathwater. Watch and find out at what two stocks they think are interesting at these new bargain prices.