3 Hot Ways to Play the Biotechnology Bonanza

By Susan J. Aluise, Aviation, Auto & Transportation Writer

Just when we thought the biotechnology rally was taking a breather, many biotech stocks got a second wind and thats good news for growth investors. Gaining exposure to the biotechnology sector makes sense for most investors but the big question isnt whether you play the biotech boom, but how you play it.

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Lets be clear: biotech stocks are the epitome of volatile, high-beta securities. While the NASDAQ Biotechnology Index is up 18% year-to-date, it has been a wild ride: up 21% from January to late February, down 21% from February to mid-April and up 24% since then.

Why do biotech stocks suffer such extreme fits and starts? Simply put, biotechnology is a big bet on highly promising, but extremely uncertain, new treatments created from living organisms like viruses, bacteria, DNA or other molecules. The lions share of biotech drugs flame out in early-stage testing and only 40% of the drugs that clear the final stage of testing receive FDA approval.

That said, here are three hot ways to play the surging biotechnology sector now: An individual biotech stock, an exchange-traded fund (ETF) and a mutual fund:

Large-Cap Stock: Gilead Sciences (GILD)

When a mega-cap biotech stock has gained nearly 44% year to date, it makes sense to wonder whether the stock has been seriously overbought and all the potential upside has been priced in. However, that time-tested logic doesnt necessarily tell the whole story when it comes to Gilead Sciences (GILD), a biotech stock that has a deep pipeline strong enough to crush Wall Streets monster expectations.

Much of the credit goes to Sovaldi, the blockbuster Hepatitis C drug the company launched late last year. Despite howls of protest over the $84,000 price tag for a 12-week course of the drug, the emergence of cheaper treatments from Johnson & Johnson (JNJ) and Bristol-Myers Squibb (BMY), and even GILDs plans to launch a cheaper version of Sovaldi for poorer countries, GILDs strength is much more than a single popular drug.

GILD has promising new launches queued up over the next year, including new treatments for HIV, as well as Hepatitis C. Among those treatments is an all-oral, single-tablet regimen of ledipasvir and sofosbuvir for the treatment of hepatitis C. GILD also is awaiting data from the low-dose HIV inhibitor TAF, as well as the launch of idelalisib for difficult-to-treat cancers.

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3 Hot Ways to Play the Biotechnology Bonanza