How Do I Find the Right Biotech Stock to Invest In?
Investing your hard-earned money can be a risky endeavor. Whether you are looking at biotech, financial institutions, or the healthcare industry, the risk can change on a daily basis.
Finding the right one with the risk you are willing to take is a journey. There are a few things you need to consider when researching a company to invest in, especially in penny stocks. You need to look for:
- Long-term funds: As a general rule, you should only invest in companies that have two years of cash reserve. However, with biotech companies, it is recommended to look at companies with more than that. This is because it takes a much longer time to get FDA approval and licensure for products. It is also wise to consider where the funding comes from.
- No debts: Be wary of companies that have too much debt. If they are going to be paying off debt after the introduction of a product, this is likely a company to avoid. Check and see if they have excessive loans from banking institutions, as this is often a red flag.
- Key areas of research such as cancer, AIDS, viral infections, etc.: It’s important to focus on biotech companies that are researching critical areas that are relevant to immediate needs. Or issues that you are passionate about, like sustainable energy or improved healthcare. These companies are likely to have a faster return on investment.
- If they’re in the clinical phase: Biotech companies in clinical trials are highly volatile and risky for any investor. This is based on the fact that they have no product to sell, only testing out a potential product. This is a make-or-break moment for some companies.
- Strong company collaboration and partners: Partners and collaborators are a signal of a stable company for the long haul. They are often born from sustained relationships in their respective industries. When a company works well with others, they are more likely to be successful.
In the rest of the article, we will show you the risks that come with investing in biotech companies and the best stocks to watch. These are biotech stocks under $5 that will fit any budget.
What are the Risks of Investing in Biotech?
The hottest topic of discussion about investing is risk. Risk is best defined as the potential amount of loss when investing in any company. They are often ranked as low, mid-, and high risk. When you consider risk, you also need to think about the stock market in the future (instead of just an immediate ROI). Here is a list of a few other risk factors to consider:
- Some things never make it to market: With any biotechnology company looking to bring a product to market, it simply may not ever happen. They may find hiccups in the clinical phase that halt production. It may be that they cannot get FDA approval. Or it just may become too expensive of an endeavor for the company to make it to market.
- Relying on outside funding sources: Of course, many biotech companies are funded by outside sources. Fundraising is a big part of the biotech world. Without funds, a company will not get very far. However, relying too much on outside funding and excessively using loans is a major red flag. Loans are considered an outside funding source and extra risky because of the payback requirement. The more a company relies on loans, the higher the risk.
- High failure rate: Failure is not necessarily a bad thing! It certainly helps to find a better solution. But a company that has consistent failures due to unnecessary mistakes is what will make the investment riskier. Competency and promise are everything, so avoid a company that is consistently failing over unwitting issues.
- Meme Stocks: Meme stocks is a new phenomenon that derives from the social media world. These stocks gain momentum based on a viral post on a social media platform that spreads to other platforms. They can sometimes be a good thing (just look at the success Game Stop found by becoming a meme stock). However, it can spell for disaster later when the support dies down. Trending only lasts for so long!
Watchlist: 3 Major Biotech Stocks Under $5
VBI Vaccines (NASDAQ: VBIV)
Since the start of the novel COVID-19 pandemic in 2020, vaccines have been the talk of every town in the US. So much so that President Biden allocated money to support community health services in each state to make the coronavirus vaccine available to all.
With funding becoming readily available in all types of vaccinations, it’s probably a good time to invest in a biotech company.
VBI Vaccines is a growing company that should be in your sights. The business believes in protecting human life and has a stellar reputation in the immunological field. Not only have they worked on immunizations for COVID-19, but they are also working on several infectious diseases and glioblastoma vaccinations. This alone makes the company a strong buy at a fair share price.
The company is headquartered in Cambridge, Massachusetts, with several research facilities around the world.
At the time of this publication, the company’s market cap sits at $971 million, making it an attractive small-cap stock. The most impressive news about this company is they received FDA fast-tracking for a vaccine and the treatment of recurrent glioblastomas.
Spectrum Pharmaceuticals (NASDAQ: SPPI)
The ongoing fight to find a cure for cancer has been a long one; fortunately, we’ve seen more and more breakthroughs in the past 20 years than ever. While there are a large number of biotech companies in the battle, Spectrum Pharmaceuticals stands out amongst them all when it comes to solving issues with unmet needs.
Spectrum Pharmaceuticals is a company that works with novel and targeted medications primarily focused on oncology. Since 1987, it has successfully launched six major medications for oncological issues and has partnered with many other research teams across the United States.
One of the biggest reasons we recommend this company is its dedication to transparency. They routinely share their findings in the research process and are very involved with others in the oncology field.
Lineage Cell Therapeutics (NYSE: LCTX)
As populations keep aging, we see more folks with age-related macular degeneration. Vision is such an integral part of our daily lives that any loss to vision can feel overwhelming.
This is where Lineage Cell Therapeutics comes in.
The company focuses on cell therapies to aid healing from degenerative diseases and trauma. The biopharmaceutical company also has a strong focus on assisting the body to build an immune response to some forms of cancer.
Lineage Cell Therapeutics is a clinical-stage company, thus it is a high-risk investment. While we discourage investments in companies that are in the clinical stage, there is a reason why the business made the list. Firstly, its stock game has been a strong one with low volatility. The stock has grown by over 160% at the time of publication. This is highly unusual, and it doesn’t appear to be slowing down.
Looking at its investor’s page seems to give insight on why it is so successful and its upside potential. It is a highly transparent company and has been growing as its research continues. Partnerships with other research teams and biopharma are apparent and numerous. This makes investing in them a bit tricky, as its clinical-stage status is really the only high-risk aspect.
Stock for Lineage Cell Therapeutics is at a perfect price target at just under $3 per share at the time of publication.
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Learning about the ins and outs of investing in the biotech industry and biotech penny stocks can apply to any other industry you consider. While investing in agriculture isn’t treated the same as mining, or tech, you can still use the tips and pointers we have outlined above.
Biotech is seeing a huge surge in investing due to the pandemic. It has shed light on how vaccines are created, especially in times of dire need.
As our lives continue on, we will take notice of other aspects of our lives and consider how to support those movements and contribute to the overall health of our communities.
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Disclaimer: All investments involve the risk of loss. Nothing on this website should be misconstrued as investment advice. Any reference to an investment’s historical or projected performance is not a recommendation or guarantee of profit or desired outcome.