How To Ride The Biotech Stock Rally [Gilead Sciences, Inc., Celgene Corporation, SPDR S&P Biotech (ETF)]

biotechTyler Laundon: Just a few months ago in March 2014 the bears were out in full force calling for a biotech meltdown. The sector had been the best-performing one in the S&P 500 index for multiple years in a row. In 2013 alone, it bested the index by nearly 20%, posting a full-year gain of 48%.

Given biotech’s volatility this spring, many investors avoided the sector like the plague.

But avoiding the volatility has been costly. Those investors that stuck with biotech, or bought into the weakness, have been well compensated. Biotech is up 20.5% this year versus 7% for the S&P 500. That means biotech is outperforming the market by nearly 3-times.

Investors need to remember that new blockbuster drugs deliver EPS growth for years for large biotech stocks. And robust drug pipelines are starting to deliver as new drugs hit the market in 2014 and 2015.


Currently, my largest personal biotech holding is Gilead (NASDAQ:GILD). This is largely a result of a sizeable position in the Fidelity Advisor Biotechnology (FBTAX) mutual fund, as well as some exposure outside of the fund.

I like Gilead because of the potential of the company’s hepatitis C drug, sofosbuvir. In December 2013, the FDA approved the company’s sofosbuvir pill to treat hepatitis C, and the drug has absolutely crushed expectations.

I also like Celgene (NASDAQ:CELG), a $57 billion company with leading therapies for various forms of cancer. The company’s largest product is the blockbuster multiple myeloma therapy Revlimid, which generated 66% of sales in 2013.

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