Biotech companies are in the eye of the storm as the world slowly starts to recover from the global pandemic. Government institutions and professional traders are banking on biotech stocks to develop a vaccine to eradicate COVID-19 at the earliest.
Tilt your stock portfolio toward biotech companies now and you could stand to make substantial profits in the near future.
You can also find cost-effective stocks under $20 to trade daily on the stock exchange.
Overview: Biotech Stocks
Biotech companies are a subsector of healthcare stocks that primarily focus on developing new drugs and treatments for medical conditions, diseases and viruses. The stock value and growth potential of a biotech firm depend on the type of diseases it treats.
For instance, a biotech firm working on breast cancer treatments, which has an estimated number of 279,100 new cases in the U.S. might be more valuable than a company that is developing drugs for Ogilvie’s Syndrome, a rare disease that only affects 1%–3% of the U.S. population.
Every new drug developed by biotech firms has to be submitted to the Food and Drug Association (FDA) for approval. Medical companies spend years developing a new drug but may fail to get it approved by the FDA. Some of these drugs will never hit the shelf of pharmaceuticals even after countless clinical trials. On the other hand, if a biotech company gets a new drug sanctioned by the FDA and the demand is high, the stock value can double or even triple overnight.
Best Online Brokers for Biotech Stock
An online broker can help you trade biotech stocks with speed and precision.
You can gain access to professional-level trading tools such as stock screens by opening an account on these platforms. Online brokers let you apply custom filters such as setting a price range to narrow down stocks under $10 within minutes.
Explore these online brokers to get started today.
Features to Look for in Biotech Stock
- Earnings per share: You can determine the profitability of a company by its earnings per share (EPS). It is calculated by dividing the net income of the company by the total number of its outstanding shares.
- Price-earnings ratio: The price-earnings ratio (P/E ratio) is calculated by dividing the current stock price by its EPS. Based on the P/E ratio, you can assess if a stock is undervalued or overvalued. The lower the P/E ratio of the stock, the better an investment it is. Generally, penny stocks under $5 have the lowest P/E ratios.
- Medical innovation: Biotech firms can spend years conducting clinical trials to test a new drug. Keep a constant watch on any news regarding medical breakthroughs and FDA approvals to make the most of your trade.
Be Patient for Better Profits
Advanced medical technology has led to longer and more fulfilling lives. An investment in biotech stocks involves longer buy-and-hold periods, but if you are patient with your trades, you can strike gold when you least expect it.