Biotech Stocks - Investing in the Foundation of the Biotech Revolution

A follow up to why Biotech stocks are the next big thing. Now, let's look at what to look at specifically to narrow down our searches - Specialised Proteins and Gene Sequencing. They are the foundations of the already on the March- Biotech Revolution.

Looks abit like a roller coaster, no?( image credit: dreamtime)

Specialised Proteins
Recently, I asked an ex-housemate of mine who is a Biotech Grad for his opinion on an stock idea involving Biotech - Specialised Proteins. There is a US company that produces the specialised proteins and blood components to everything from hospitals to research facilities around the world. The company fundamentals are sounds and margins are fantastic. The name of the company? Techne.

So, with that I asked him about specialised proteins. This is what he had to say:

" protein studies is a huge area in biotech. next to genomics study, protein study is the natural ascension of where researchers will go to. In fact it is one of the major driving component for why pharmaceutical companies are losing to biotech companies. Big pharma companies are now changing their business models diverting their R&D towards protein development rather than drug development. "

He explained further about how drugs today are basically chemicals to react with your protein to give the desired effect on your body. Of course, everyone knows how drugs normally come with side effects like aspirin can cause gastric and cough syrup makes your drowsy (or high!). So, what we are basically taking about is - Smart Drugs.

The most brilliant thing about this stock idea is that it is not actually choosing a drug/compound that may get approval and finally marketed but we are dealing with the building blocks of such drugs.

Gene-Sequencing Devices

He then bounced back an idea on something he's selling (as his job) and believes in to do with Biotech - gene sequencing equipment.

In fact, he named the stock - Ilumina (ILM). (Check it on the Fool and Yahoo Finance) A stock that has already risen nearly 400% in the last 3 years and the stock valuations are out of whack - PE of 68! Yet, it is still a highly recommended stock and is followed closely by Wallstreet.

So what's so great about Ilumina? Well, before you can create a 'smart drug' - you need to know what you want to target/create. The devices which Ilumina sell - gene sequencers will/are the new microscopes and I am told that these are way ahead of their competitors yet there is still market to grow in Asia.

Think is this way - Asia - We have less qualms on playing God and Bioethics in general and the biotech money is flowing this way and there will need these two things - Specialised proteins and gene sequencers.

Downside - Vulnerability to Recessions

However, the downside of investing in these ideas is the heavy exposure to the Research & Development Sector (R&D) which is vulnerable to recessions. Laboratories, Universities and Hospitals will always need such products but the problem with these steady customers? R&D is usually the first area where funding is cut off and there goes the lifeline for these products.

Taking into account how oil prices are increasing, this can very much tip the economy into recession but there is talk that governments around the world wouldn't want that to happen.

Also, I am slightly concerned about both stock valuations where their PE ratios are just crazy! (ILM: 78.52! and Tech - 25.3) On the flipside, are these testimony to the growth potential or are we just the greater fool? (I am inclined to think the former!)

Further reading:

http://seekingalpha.com/article/255770-illumina-a-valuation-from-outer-space?source=dashboard_stocks-sectors (note : seekingalpha is a site for any investor of any skill/knowledge level to exchange their ideas or thoughts so be aware of that and always remember to your own independent research)

http://blogs.forbes.com/matthewherper/2011/02/11/can-a-dna-sequencer-get-fda-approval/?partner=yahootix (more on ILM)

Biotech Stocks - High Growth Opportunity?

Are Biotech stocks one to look out for as Biology is the dominant science of this Century? Read on as I make the argument why it is. (image credit: dreamtime)

Giant Spider makes Web 10 times stronger than Kevlar

For those that don't know Kevlar is what we use to make our bullet proof vests, so in theory these spiders make webs which are 10 times better at stopping a bullet! Amazing. It goes to show how nature may be just as good or even better at producing materials/things we need.

Before we go further into why BIOLOGY is the field of science the next 100 years, let's look at history.

Astronomy has played its role in helping mankind explore the World by helping them navigate the seas and establish new trade routes, followed by Chemistry and Physics paving the way for the Industrial Revolution. Physics gave us flight, refrigeration, electronics..even the Internet!

So, what is the dominant science for this century? Easy, Biology. It all started with the mapping of the human genome in 2003 which has opened the world to new possibilities.

Physicist and Author Freeman Dyson : "Two branches of biology in particular, genetics and neurophysiology, presents us with an abundance of fundamental unsolved problems that new technological tools will enable us to attack."

So, that's where the next big growth market is - Imagine a new treatment for cancer where the healthy cells will actually attack the cancer cells or stemcells which help people who have lost limbs/organs by growing them back!

Well, that's all I can lead you a top-down investment idea. I have to admit I am not a biologist or close.. but I have some links as to fool.com (only the greatest investing website out there IMHO!) with someone who has some idea what he is doing!

(Do note tho' that this may be a high growth industry but these stocks are equally risky and/or volatile because being approved for commercial use, safety and its actual economic viability are obstackes. I plan to look at SGX biotech stocks when I have the time or does anyone have any tips?)

Read on: http://www.fool.com/investing/small-cap/2011/02/17/an-inside-look-at-biotech-investing.aspx for part one

And you can visit his profile to see his performance and why he picks certain stocks and comments to follow - http://caps.fool.com/player/zzlangerhans.aspx

He is described as : "an emergency room physician and Harvard magna cum laude in biochemistry who has been a Howard Hughes research fellow in transgenic mouse models and an NRSA fellow in xenotransplantation. He currently maintains a high rating on CAPS while focusing exclusively on biotechnology companies."

As such, you can be assured at least its within HIS circle of competency! One to watch, I say! His blog is here.

Full Disclosure: Yes, I am a faithful reader of fool.com and also a member of its premium SA service but this is an unsolicited post.