Are you good at spotting patterns? Most of us are. We even spot patterns when they're really not there -- like seeing faces in clouds.
The list below of 2014's top 10 stocks with a market cap above $300 million, however, reveals a very real pattern -- and one that might be surprising. See if you can identify what it is.
|1||Avanir Pharmaceuticals (NASDAQ: AVNR)||404.5%||Healthcare||Biotech & Pharma|
|2||Agios Pharmaceuticals (AGIO 3.95%)||367.8%||Healthcare||Biotech & Pharma|
|3||bluebird bio (NASDAQ: BLUE)||337.2%||Healthcare||Biotech & Pharma|
|4||Receptos (NASDAQ: RCPT)||322.6%||Healthcare||Biotech & Pharma|
|5||Achillion Pharmaceuticals (NASDAQ: ACHN)||269.1%||Healthcare||Biotech & Pharma|
|6||PTC Therapeutics (NASDAQ: PTCT)||205.1%||Healthcare||Biotech & Pharma|
|7||Tetraphase Pharmaceuticals (NASDAQ: TTPH)||193.7%||Healthcare||Biotech & Pharma|
|8||Hawaiian Holdings (NASDAQ: HA)||170.5%||Consumer Discretionary||Passenger Transportation|
|9||Chimerix (NASDAQ: CMRX)||166.4%||Healthcare||Biotech & Pharma|
|10||Skyworks Solutions (NASDAQ: SWKS)||156.4%||Technology||Semiconductors|
This little exercise was probably very easy. A whopping eight of the top 10 best-performing stocks from last year all belonged to the healthcare sector and, more specifically, the biotech and pharma industry. It's probably no surprise that biotech and pharma were well represented among the best stocks of 2014 -- but to this extent? Investors looking for big wins in 2015 should try to understand why this dominating performance happened and whether it's repeatable.
Each of those eight healthcare stocks experienced catalysts from promising clinical trial results. Top-ranked Avanir Pharmaceuticals announced positive results for an experimental Alzheimer's disease drug in September. That good news was followed a few months later by a $3.5 billion buyout offer from Otsuka Pharmaceuticals.
Second-ranked Agios Pharmaceuticals received boosts throughout 2014 from continued good news related to its pipeline, including leukemia drug AG-120. The company has also benefited from its relationship with Celgene, which has a collaboration deal with Agios and owns over 4 million shares of the smaller biotech.
Looking to the future
We could go one by one through the others to find out about the clinical results that turbocharged each stock, but that won't necessarily help investors in finding 2015's versions of Avanir, Agios, and the other top stocks from last year. Instead, let's look to the future to see which biotechs could have promising potential over the next 12 months. A couple to watch closely include Exelixis (EXEL 0.37%) and NPS Pharmaceuticals (NASDAQ: NPSP).
Exelixis had an awful 2014, with shares plunging nearly 80%. That dismal performance came on the heels of disappointing results for its drug Cometriq in treating prostate cancer. However, the small biotech gets another chance with the drug in 2015. Results from a phase 3 trial of Cometriq as a kidney cancer treatment are expected in second quarter of 2015.
NPS Pharmaceuticals experienced an up and down year in 2014. The FDA is scheduled to announce a decision on hypoparathyroidism drug Natpara by Jan. 24. Good news would no doubt send the stock considerably higher.
Of course, just as with the big winners from last year, there's no way to know in advance whether clinical results or FDA decisions will be positive or negative. One important thing to remember when investing in this industry is that the biggest potential for gain also comes with the biggest risk.