Over the course of this long bull market, biotech stocks have been very, very good for their owners. Perhaps too good. Investors have shown such rabid enthusiasm for biotechs—especially small, unproven companies that have yet to bring a drug to market—that some observers are using another b word to describe the high-flying sector: bubble.
Bubble or not, biotech investors have been having a blast. Over the past five years, iShares Nasdaq Biotechnology ETF (symbol IBB), an exchange-traded fund that tracks 150 Nasdaq-listed biotech stocks, earned an annualized 31.2%, more than double the return of Standard & Poor’s 500-stock index. In 2012, 2013 and 2014, the ETF earned 32%, 66% and 34%, respectively. It tacked on another 13% in the first nine weeks of 2015.
Short-term returns—and valuations—of individual stocks are stunning. Juno Therapeutics (JUNO), which is developing cancer drugs, went public in December at $24 per share. It rocketed to $62 and now trades at $53, giving the company, which has no sales, a market value of $4.8 billion. (Share prices and returns are as of March 6.)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
There are legitimate reasons for the fervor. Industry insiders say the pace of innovation has never been greater, and the Food and Drug Administration is approving more drugs more quickly than ever.
Finding success stories remains a challenge, however. Share prices of companies that win approval for their drugs or show enough promise to be acquired by one of the industry’s big players can double or triple in a flash. Companies, especially young ones, whose drugs flame out during testing often run out of money and leave their shareholders with massive losses. “To invest in individual names in this field, you need nerves of steel and confidence that you understand the science,” says Morningstar analyst Robert Goldsborough.
-
July Fed Meeting: Live Updates and CommentaryThe July Fed meeting could be a lively economic event, with Wall Street keyed into what Fed Chair Powell has to say about interest rates and President Trump.
-
Trump's Latest: No Capital Gains Tax on Home Sales? What to KnowTax Policy Capital gains taxes are back in the spotlight. This time, the chatter on Capitol Hill has to do with rising home prices.
-
If You'd Put $1,000 Into Berkshire Hathaway Stock 20 Years Ago, Here's What You'd Have TodayBerkshire Hathaway is a long-time market beater, but the easy money in BRK.B has already been made.
-
If You'd Put $1,000 Into Procter & Gamble Stock 20 Years Ago, Here's What You'd Have TodayProcter & Gamble stock is a dependable dividend grower, but a disappointing long-term holding.
-
My Three-Day Rule for Investing: And If it Applies NowStock Market I've seen a lot in my career. Here's what I see now in the stock market.
-
Is It Time to Invest in Europe?Stock Market Europe is being shaken out of its lethargy, militarily and otherwise, by Donald Trump's changes in U.S. policy. Should investors start buying?
-
Why Is Warren Buffett Selling So Much Stock?Berkshire Hathaway is dumping equities, hoarding cash and making market participants nervous.
-
If You'd Put $1,000 Into Google Stock 20 Years Ago, Here's What You'd Have TodayGoogle parent Alphabet has been a market-beating machine for ages.
-
Stock Market Today: Stocks Retreat Ahead of Nvidia EarningsMarkets lost ground on light volume Wednesday as traders keyed on AI bellwether Nvidia earnings after the close.
-
Stock Market Today: Stocks Edge Higher With Nvidia Earnings in FocusNvidia stock gained ground ahead of tomorrow's after-the-close earnings event, while Super Micro Computer got hit by a short seller report.
