10 Easy Ways to Find Top Biotech Stocks
Dear Wall Street Daily Reader,
For the better part of 18 months now, I’ve been banging the table on biotech stocks — and it’s paid handsome dividends. But one reader recently challenged me on this…
“It’s easy for you to say, ‘Buy biotech!’ and then find compelling biotech companies because you’re an analyst. It’s not so easy for the rest of us.”
Fair point. After all, I spend all day researching and developing screens and strategies to identify the best possible investment opportunities. That’s not a luxury most everyday investors enjoy.
But don’t be fooled. There’s a quick, easy way for anyone to find compelling biotech stocks.
It’s All About the Data
Being a fundamental analyst by trade, I learned early-on that biotech stocks don’t trade based on typical metrics like cash-flow, P/E ratios, EBITDA margins, etc.
With biotech stocks, the key to making money is data.
Data about the effectiveness of a new medicine… data about potential side effects… and data published in peer-reviewed journals.
The better the data, the better the odds of FDA approval. And that’s when these stocks can soar in value!
This explains why FDA clinical trial dates become a natural and obvious catalyst for share prices. Each clinical trial brings a drug one step closer to approval.
So the first thing you can do when you evaluate any potential biotech stock is to insist on an imminent data readout.
After all, if data is what moves biotech stocks, there’s no point in buying a company that requires you to sit around and wait forever before shares have a chance of rallying big.
But that’s not all…
Be Smart and Follow the Smart Money
Of course, simply buying a biotech stock with an impending data readout isn’t an investment strategy.
That’s like placing a random bet on red or black at the roulette table and seeing what happens.
Clearly, when it comes to picking biotech stocks, far more research needs to be done. That’s how we ensure we’re buying potential blockbusters instead of duds.
And that’s where the above reader’s rub comes in: he doesn’t have the time and I do — and therefore, he thinks he’s at a disadvantage.
You see, there’s an easy way to leverage a biotech research team that’s smarter, more experienced, and even more profitable than I am. For free!
How so? Just follow the “smart money” that literally spends millions — and sometimes years — performing diligence on potential investments before pulling the trigger.
Many investors “follow” Warren Buffett, and more recently, Cathie Wood of Ark Invest. And you can do the same thing with smart-money biotech investors.
For example, I track a biotech fund called RA Capital Management.
Since 2008, this fund has averaged annual returns of 37.05%. That’s an incredible track record.
Just to put it into perspective, Warren Buffett is known as perhaps the greatest investor in the world. And yet, RA Capital’s returns are more than double Buffett’s returns.
So, when RA Capital buys a new biotech stock or adds to an existing position, it pays to investigate and explore following its lead.
That’s why I track its investments, and the investments of similar funds, too.
Best of all, this is easy to do. Why? Because the SEC requires every fund manager with over $100 million under management to share every position in its fund in a 13-F filing. These filings must be made within 45 days of the end of every quarter.
By simply tracking these filings — and tracking new purchases — for the top biotech funds, anyone can easily identify compelling biotech stocks. Every 90 days.
Now, before you complain you don’t know how to identify the top biotech funds, here’s my short-list:
There’s a website that will make your research even easier.
For those unfamiliar, WhaleWisdom enables you to easily track 13-F filings by a specific fund and/or company.
The latter functionality is key. Because it allows you to look for “buying clusters” — i.e., multiple top funds buying the same stock in a given quarter. That’s about as bullish an indicator you can get in biotech.
Bottom line: now I’ve taught you how to quickly and easily find potential winners…
So keep buying biotech stocks!
Ahead of the tape,
Editor and Founder, Trend Trader Daily