Benefits and risks of investing in genomics stocks
Here are the biggest benefits of investing in genomics stocks:
- Genomics as a whole has significant growth potential. Mordor Intelligence estimates that the global genomics market will grow at a compound annual growth rate (CAGR) of 11.4% through 2031.
- Companies that make breakthroughs in treatments, diagnostics, or gene therapies deliver outsize returns to investors.
- There's always a need for new, innovative medical treatments. Like other healthcare companies, genomics companies typically have a high demand for their products and services.
- In addition to healthcare, genomics has other applications, including crime scene forensics and improving agricultural products.
However, there are also some notable downsides to know about before you invest:
- Genomics stocks can be highly volatile. Prices often remain stagnant for long periods, then suddenly surge or plummet rapidly in response to a single piece of news, such as the outcome of a clinical trial.
- These aren't the easiest businesses to understand, considering many are founded by serious researchers, including Nobel Prize winners. Investors who want to stick to what they know often avoid this sector, unless they have experience in it themselves.
- Many genomics companies operate at a loss for years during research and development (R&D) phases. This is another reason they're high-risk investments.
The bottom line
Technological advancements have made genomics an exciting area for investment, but it has one of the highest learning curves of any industry. It's also risky, considering many of the top genomics companies have yet to turn a profit.
That said, there are many types of genomics companies to choose from, ranging from cutting-edge gene editing companies, such as CRISPR, to established, profitable businesses, such as Quest Diagnostics.
If you're knowledgeable about genomics or you're willing to learn, you may want to consider making genomics stocks part of your portfolio. Just remember that progress in genomics companies is often sporadic. A buy-and-hold strategy is essential to give your holdings time to mature and pay off.