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 160,000-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 our community's 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 20%.
• 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 are three companies that I like from among the candidates our screen returned:

Data and star rankings from CAPS.

Spectrum Pharmaceuticals
With products already on the market, and more candidates in late-stage clinical trials, CAPS members see a solid foundation for upside with Spectrum Pharmaceuticals. It recently licensed mid-stage anti-cancer compound Belinostat, and also completed enrollment of phase 3 trials of bladder cancer treatment apaziquone. The latter was enough to land it a milestone payment from Allergan (NYSE: AGN). The company is aiming to apply for approval in 2011 for Belinostat and 2012 for EOquin, but it has been keeping investors engaged for now with an 8.5% sequential uptick in fourth-quarter Zevalin sales. A near-unanimous 98% of the 275 CAPS members rating Spectrum Pharmaceuticals believe it will beat the broader market. 

Gilead Sciences
Health-care reform has already taken a toll on several drug companies. Abbott Labs (NYSE: ABT) and Gilead Sciences, which both lowered their 2010 sales outlooks because of the estimated impact of the new legislation. Despite a recent sell-off in the stock, many investors remain upbeat on Gilead's lead and continued progress in HIV/AIDS treatment. The company posted a 36% increase in first-quarter sales of Atripla, a pill combining drugs from Gilead and Bristol-Myers Squibb (NYSE: BMY), and a combination pill that it's working on with Johnson & Johnson (NYSE: JNJ) also shows promise. With its ability to use its strong cash flow and solid balance sheet to lessen the threat of patent expirations, many CAPS members still have a bullish outlook. Nearly 97% of the 1,923 CAPS members rating Gilead Sciences expect it to outperform the S&P.

Elan
Elan got a huge vote of confidence, along with a nice injection of investment capital, from Johnson & Johnson last year. The cash added $885 million to Elan's balance sheet, in exchange for an 18% stake in the company. 

A couple of signs point to further financial improvements for Elan. It reported a 25% first-quarter increase for recorded sales of its blockbuster multiple sclerosis drug Tysabri, and its drug delivery business also saw an uptick in quarterly revenue. The company is forecasting a full-year operating profit, and it's once again revisiting the possibility of splitting the company apart, a move some investors believe could help it unlock more value for shareholders. Numerous CAPS members stand behind the future of the company, with roughly 93% of the 978 members rating Elan holding a bullish outlook on the stock.  

Let 160,000 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.