Top 5 Biotech Stocks & ETFs for Long Term Investing
Did you know that biotech stocks have surged in interest with some soaring more than 3,000% higher in just a matter of months?
This form of biology uses technology to develop products to improve lives and the health of the planet across a broad range of sectors whether it's finding a vaccine for a disease or enhancing agricultural processes to use less energy.
The trend in this industry is set to surge over the next decade. This is why investors are extremely keen to find the best biotech stocks to invest in which is exactly what this article covers!
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Top Biotech Stocks List
There are many different biotech companies around the world with a constantly changing market capitalization. This is because this sector often has a lot of mergers and acquisitions where larger companies buy out smaller companies who have made a breakthrough.
The list below are some of the top biotech stocks by market capitalization and are biotech stocks to watch for this year:
- Amgen (US) - $126.5 billion
- Novo Nordisk (Denmark) - $103.5 billion
- CSL (Australia) - $80.3 billion
- Gilead Sciences (US) - $80 billion
- Biogen (US) - $54.1 billion
- Vertex Pharmaceuticals (US) - $51.2 billion
- Merck Group (Germany) - $45.37 billion
- Regeneron (US) - $34.2 billion
While the biggest biotech stocks may not be the best biotech stocks it's a great place to start! Further down this article we go through the top five biotech stocks to focus on for this year so be sure to keep on reading!
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What are Biotech Stocks?
Biotech stocks are publicly traded companies that use, create and develop technology that is based on biology. The sector itself is quite broad and encompasses a wide range of industries.
After the coronavirus outbreak in 2020, biotech companies that were involved in the development of a coronavirus vaccine had a surge of interest from investors with some stock prices surging more than one thousand per cent higher.
As these types of companies invest heavily in research that sometimes never makes a profit, biotech stock prices can be very volatile and need strict risk management principles as prices can swing wildly both up and down. For example, after the coronavirus outbreak, investors were keen to gain exposure to companies who were more likely to find a vaccine first, causing volatile price action in biotech stock prices.
Biotechnology does not just encompass companies on the search for vaccines for one type of virus. Biotech companies have long been in existence and work on a variety of cellular and biomolecular processes in order to create different types of technology to help improve lives and the planet.
According to the world's largest trade association which represents biotechnology companies, BIO, these include:
- Using genetics to heal the world and reduce the rate of infectious diseases, with more than 250 biotechnology health care products and vaccines now available.
- Harnessing the power of biocatalysts like enzymes and yeast, as well as fermentation to improve manufacturing processes, with more than 50 bio-refineries being built in North America.
- Using biotechnology to improve global farming standards and make them more environmentally friendly, with more than 13.3 million farmers using agricultural biotechnology methods.
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How to Invest in Biotech Stocks
Once you have downloaded your MetaTrader 5 trading platform provided by Admiral Markets for FREE, you can search for different biotech stocks directly from the platform. Just follow these simple steps:
- Open your MetaTrader 5 trading platform.
- Select the View tab from the top menu and then Market Watch.
- When this column opens, right-click and select Symbols.
- Search for the biotech stocks you want to trade and press ok, then drag it from the Market Watch window onto the chart.
A screenshot of the Symbols window in the MetaTrader 5 trading platform provided by Admiral Markets.
Top 5 Best Biotech Stocks to Invest in
Finding hot biotech stocks, creating a biotech stocks list to watch and identifying biotech companies to invest in does require some skill and time. Investors would often research and stay up to date with all of the latest developments and progress of a company's different biotech products.
However, active investors may focus on just a selection of the largest biotech companies stock prices to be able to stay abreast of what's happening. Passive investors may consider a biotech ETF which is discussed in more detail in the next section further down this article.
For now, let's have a look at some of the largest biotech stocks to watch which could be some of the best biotech companies to invest in. As always, investing comes with the possibility of winning and losing so be sure to use good risk management!
1. Amgen (#AMGN)
Amgen is an American biopharmaceutical company headquartered in California, United States and has more than 22,000 employees. The company is focused on molecular biology and biochemistry with its largest selling product an immunostimulator called Neulasta, which is designed to prevent infections for patients who are undergoing chemotherapy. Another major product line for Amgen is Enbrel which is used in the treatment of rheumatoid arthritis, as well as other autoimmune diseases.
Source: Admiral Markets MetaTrader 5, #AMGN, Monthly - Data range: from 1 Sep 2005 to 28 Jun 2021. Please note: Past performance is not a reliable indicator of future results.
The chart below shows Amgen's long-term, monthly price chart. The companies stock price moved sideways for much of 2008 to 2011 before breaking out in a long-term bull trend with price staying above its monthly 50-period moving average (red line) for quite some time.
2. Novo Nordisk A-S (#NVO)
Novo Nordisk A-S is a Danish pharmaceutical company founded in 1923 headquartered in Bagsværd, Denmark, with more than 40,000 employees around the world. The company has production facilities in eight countries and is considered a leader in diabetes care but is also involved in growth hormone therapy.
Source: Admiral Markets MetaTrader 5, #NVO, Monthly - Data range: from 1 Aug 2005 to 28 Jun 2021. Please note: Past performance is not a reliable indicator of future results.
The long-term, monthly price chart of the company's share price below shows a strong uptrend since its inception with the biggest and most notable decline from 2015 to 2017 due to controversy regarding some of its drugs that were recalled in some European countries and a United States Department of Justice probe.
3. CSL (#CSL.AU)
CSL Limited is an interesting biotech company with a long history dating back to 1916 where it was a government body in Australia, created to develop vaccines. The company was privatised in 1994 and has focused on areas such as blood plasma derivatives, cell cultures, vaccines and genetic research. CSL produced the world's first vaccine for Swine Flu in 2009 and has designed a raft of other products for immunology, bleeding disorders, critical care and wound healing.
Source: Admiral Markets MetaTrader 5, #CSL, Monthly - Data range: from 1 Sep 2005 to 28 Jun 2021. Please note: Past performance is not a reliable indicator of future results.
CSL's long-term price chart shown below shows a rather uninterrupted trend higher since privatising in 1994, with price action staying well above its 50-period moving average.
4. Gilead Sciences (#GILD)
Gilead Sciences is an American biopharmaceutical company founded in 1987 and headquartered in California, US. The company's main focus is on antiviral drugs that are used in the treatment of HIV, influenza and hepatitis B and hepatitis C.
The company has been plagued with several class-action lawsuits over allegations they delayed development of some drugs in order maximise profits from previous-generation medications. However, after the outbreak of the coronavirus in 2020, the company received a lot of attention due to its drug Remdevisir and its ability to treat severe symptoms of Covid-19.
Source: Admiral Markets MetaTrader 5, #GILD, Monthly - Data range: from 1 Aug 2005 to 28 Jun 2021. Please note: Past performance is not a reliable indicator of future results.
While the company's stock price did benefit from the news, it was short-lived with the price settling back into a trading range that has developed since 2017, as the chart shows above.
5. Biogen (#BIIB)
Biogen Inc is an American biotechnology company that was founded in 1978 and is headquartered in Cambridge, Massachusetts. The company was originally founded by several different prominent biologists and Nobel Prize winners. After merging with IDEC Pharmaceuticals in 2003, it became the third-largest biotech company in the world.
The company focuses mainly on neurological and neurodegenerative conditions. This includes conditions such as Alzheimer's and Parkinson's. However, its share price has struggled in recent years due to regulatory issues causing the suspension of medical trials of its new Alzheimer's drug, as seen in the long-term price chart below.
Source: Admiral Markets MetaTrader 5, #BIIB, Monthly - Data range: from 1 Sep 2005 to 28 Jun 2021. Please note: Past performance is not a reliable indicator of future results.
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While some traders and investors will have the ability to track individual company prices, others who are more passive in their approach may choose to focus on a biotech ETF such as the SPDR S&P Biotech ETF, Vanguard Biotech ETF or iShares Nasdaq Biotechnology ETF. Instead of trying to find individual biotech companies to invest in or the best biotech stock for a portfolio, a biotech ETF offers the ability to gain exposure to the overall sector.
Investing in a Biotech Index and Biotech ETFs
A biotech stock index is similar to a typical stock market index such as the FTSE 100 or Dow Jones 30. For example, the Nasdaq Biotechnology Index is a stock market index that is made up of companies listed on the Nasdaq stock exchange that are classified as either in the Biotechnology or Pharmaceutical industry.
The Nasdaq Biotechnology Index is not the only biotech stock index. Others include the S&P Biotech Index which is a stock market index that is made up of companies in the S&P Total Market Index that are classified in the GICS (Global Industry Classification Standard) biotechnology sub-industry.
An ETF, or Exchange Traded Fund, is a product that tracks an underlying index such as a biotech index. The ETF is essentially an investment fund that holds a collection of securities such as the stocks that make up the index it attempts to track. These ETFs are tradable on stock exchanges and are quite popular for many investors. Let's take a look at an example of one of these and how you would invest in biotech funds such as ETFs.
Best biotech ETF funds 2020 - SPDR S&P Biotech ETF (#XBI)
The SPDR (Standard and Poor's Depositary Receipt) ETFs are managed by asset management division State Street Global Advisors. They are known for managing one of the biggest ETFs in the United States called the SPDR S&P 500 ETF.
The company also manages the SPDR S&P Biotech ETF. According to the key features of this biotech ETF stock it “seeks to provide exposure to the Biotechnology segment of the S&P Total Market Index, which comprises the following sub-industries: Biotechnology."
As of 27 July 2020, the fund's top holdings include the following:
The fund actually holds around 136 different biotech stocks within it. They include some of the well-known companies such as Amgen and Biogen discussed earlier in this article. However, the top fund holdings for July 2020 mainly consist of biotech stocks that surged higher in the year due to leading the race for a coronavirus vaccine. In fact, some stocks such as Novavax (#NVAX) - which is the fund's top holding - was up nearly 3,000% in the first half of 2020 due to impressive early stats in its Covid-19 vaccine trials.
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Below is the long-term, monthly price chart of the SPDR S&P Biotech ETF.
Source: Admiral Markets MetaTrader 5, #XBI, Monthly - Data range: from 1 February 2006 to 28 July 2020. Please note: Past performance is not a reliable indicator of future results.
While the swings in price have been quite large, the market has remained in a long-term uptrend since 2011. As biotech companies often spend a lot of money on research and development investors tend to position themselves for a 'good result'. However, if trials do not go as planned investors can be just as quick to exit. This is why biotech stocks are volatile and why taking a longer-term view may be more prudent.
Using the Technical Insight indicator from the FREE Admiral Markets Supreme Edition upgrade, users can find actionable trading ideas on thousands of stocks and ETFs, including the SPDR S&P Biotech ETF, as shown below by the active events for 28 July 2020:
A screenshot showing an example of searching for 'SPDR S&P Biotech ETF' in the Technical Insight™ indicator from the MetaTrader 5 Supreme Edition platform provided by Admiral Markets.
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This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.