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Investing in biotech stocks

An investment in biotech stocks is typically a waiting game — and a gamble.

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Shannon Terrell

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The groundbreaking research being done in this industry has the potential to change the world. But strict government regulations may put a damper on company profits and impact investor returns.

What are biotech stocks?

Biotechnology is the research and application of biomolecular processes. These processes are used to create products and technologies designed to help improve our quality of life and support the planet. How? By helping us combat disease, improve the environment, harness clean energy, enhance food production and devise more efficient manufacturing processes.
Biotechnology stocks are stocks from companies that research and produce biotech products, like pharmaceutical drugs, vaccines, biofuels, genetically modified plants, biocatalysts and more.

How to buy biotech stocks

Here’s what to expect from the investment process.

  1. Choose a stock trading platform. There are many platforms to choose from depending on your needs. If you’re new to investing, consider a beginner-friendly platform like Robinhood or SoFi. If you’ve got some experience under your belt and plan on performing your own research, explore a platform with comprehensive research tools, like Interactive Brokers or TD Ameritrade.
  2. Open your account. Apply for the type of account you want, whether it’s individual, joint or a retirement account. Note, you’ll need to provide your personal and financial information.
  3. Fund your account. Once your account is open, transfer money. Typically, you can make a wire transfer or an ACH transfer.
  4. Search for stocks. Look up stocks by ticker symbol or use a stock screener to filter the ones you’re interested in. The right biotech stock for your portfolio is a matter of cost, risk and strategy.
  5. Place an order. Once you’ve found an investment you want, specify the number of stocks you want to buy. Some brokers let you buy fractional shares, which can be handy if you have a small account and the stock price is too high. Finally, submit the order.

Biotech stocks

From startups to well-established international corporations, there are numerous options for investors interested in purchasing biotech stocks. See how the following stocks are performing, and view details like market capitalization, the price-to-earnings (P/E) ratio, price/earnings-to-growth (PEG) ratio and dividend yield.

What ETFs track the biotech category?

For a less targeted and more diverse approach to biotech investing, consider any of the following exchange-traded funds.

  • ARK Genomic Revolution ETF (ARKG)
  • First Trust Amex Biotechnology Index (FBT)
  • Invesco Dynamic Biotechnology & Genome ETF (PBE)
  • iShares Nasdaq Biotechnology ETF (IBB)
  • SPDR S&P Biotech ETF (XBI)
  • VanEck Vectors Biotech ETF (BBH)

    Why invest in biotech stocks?

    Many biotech products — like pharmaceuticals — are a necessity. And staples like these have proven their capacity to weather down markets.
    For example, in the first three months of 2020, the S&P 500 dropped by a sizable 26.7%, while the iShares Nasdaq Biotechnology Index ETF — a fund that tracks US biotech and pharmaceutical companies — only lost 15.6%. And in the past year, the same fund has outperformed the S&P 500’s 10.5% return with a 31.6% return of its own.
    The COVID-19 pandemic caused many markets to tank, but stocks in companies looking for effective COVID-19 treatments and vaccines received increased interest. This is just one example of the down-market resilience of the biotech industry.
    Biotech stocks can help balance your portfolio during an economic downturn while providing the opportunity for investors to back groundbreaking technology — technology with the potential to alter and improve our way of life drastically. Biotechnology can and has changed the world — and investors can lend a hand in the process.

    Risks of investing in biotech

    The primary risk factor for biotech investors is the long, arduous and costly process of bringing a concept through research and development to a consumer-ready product.
    Many companies in this industry rely on approval from the US Food and Drug Administration (FDA), and the process can take years. There’s no guarantee that a drug in development will reach pharmacy shelves or that a new industrial pesticide will be cleared for public use. Some biotech companies funnel funds into projects that span years with nothing to show for it.
    Investors must be willing to wait months or years for biotech stock investments to pan out. And even then, there’s no guarantee of return.

    Biotech market projections

    By 2025, the global biotech market is expected to reach $775 billion, according to Global Market Insights — an impressive figure considering the market was worth just $399 billion in 2017. Biopharmacy is by far the largest segment of the market, but bioinformatics, bioagriculture and bioservices are also on the rise.
    Key market drivers include regenerative medical therapy, genetics in diagnostics and the advancement of artificial intelligence. Analysts forecast that the biotech industry is projected to attain a compound annual growth rate of 7.4% to 8.3% through 2025.

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    To invest in biotech stocks, you need a brokerage account. Compare features and fees of top accounts to find the best fit for your goals and budget.

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    Bottom line

    Biotechnology is rife with potential but is often subject to strict regulations. Investor funds may be tied up for years, and there’s no guarantee of a return.
    To invest in biotech stocks, explore your brokerage account options across multiple platforms for the account best suited for your investment goals.

    Frequently asked questions

    Do biotech stocks pay dividends?
    Yes. Some that do include Amgen and Bio-Techne.

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