How to Invest in Biotech Stocks and a Biotech ETF
Since the outbreak of the coronavirus in 2020, biotech stocks have surged in interest with some soaring more than 3,000% higher in just a matter of months. This form of biology uses technology to develop products to improve lives and the health of the planet across a broad range of sectors.
Whether it's finding a vaccine for a disease, enhancing agricultural processes to use less energy or using biofuels to cut greenhouse gas emissions, biotechnology companies are now at the forefront of investors' minds which is why learning how to invest in biotech stocks and a biotech ETF (Exchange Traded Fund) is now hugely important.
In this article you will learn:
- What biotech stocks are and how to find the best biotech companies to invest in.
- The top biotech stocks to buy now and how to start investing in them.
- How a biotech ETF offers investors a unique way to capitalise on the exponential growth of the biotech industry.
- And much, much more.
What are biotech stocks?
Biotech stocks are publicly traded companies that use, create and develop technology that is based on biology. The sector itself is quite broad and encompasses a wide range of industries.
After the coronavirus outbreak in 2020, biotech companies that were involved in the development of a coronavirus vaccine had a surge of interest from investors with some stock prices surging more than one thousand per cent higher.
As these types of companies invest heavily in research that sometimes never makes a profit, biotech stock prices can be very volatile and need strict risk management principles as prices can swing wildly both up and down. For example, after the coronavirus outbreak, investors were keen to gain exposure to companies who were more likely to find a vaccine first, causing volatile price action in biotech stock prices.
Biotechnology does not just encompass companies on the search for vaccines for one type of virus. Biotech companies have long been in existence and work on a variety of cellular and biomolecular processes in order to create different types of technology to help improve lives and the planet.
According to the world's largest trade association which represents biotechnology companies, BIO, these include:
- Using genetics to heal the world and reduce the rate of infectious diseases, with more than 250 biotechnology health care products and vaccines now available.
- Harnessing the power of biocatalysts like enzymes and yeast, as well as fermentation to improve manufacturing processes, with more than 50 bio-refineries being built in North America.
- Using biotechnology to improve global farming standards and make them more environmentally friendly, with more than 13.3 million farmers using agricultural biotechnology methods.
Did you know that you can download the MetaTrader 5 trading platform provided by Admiral Markets completely FREE and view live and historical price charts of more than 3,000+ stocks and ETFs from 15 of the largest stock exchanges in the world?
Along with advanced trading features, you can trade directly from the chart while accessing expert tools to help find the best biotech stocks to buy now! Download your FREE MetaTrader 5 trading platform today by clicking the banner below:
The top biotech stocks by market capitalization
There are many different biotech companies around the world with a constantly changing market capitalization. This is because this sector often has a lot of mergers and acquisitions, as larger companies buy out smaller companies who have made a breakthrough.
However, as of 2019, these are some of the top biotech stocks by market capitalization:
- Amgen (US) - $126.5 billion
- Novo Nordisk (Denmark) - $103.5 billion
- CSL (Australia) - $80.3 billion
- Gilead Sciences (US) - $80 billion
- Biogen (US) - $54.1 billion
- Vertex Pharmaceuticals (US) - $51.2 billion
- Merck Group (Germany) - $45.37 billion
- Regeneron (US) - $34.2 billion
Did you know that you can trade and invest in all of these companies with Admiral Markets? The biotech stocks list that you can trade or invest in is quite large. You can view them for yourself directly from the trading platform or from the Admiral Markets Contract Specification page under the Health Care - Biotechnology category as shown below:
Source: Admiral Markets Contract Specification page.
Did you know that you can invest in some of these companies with an Invest.MT5 account? This allows investors to:
- Open an account with just €1 minimum deposit and invest from just $0.01 per share with minimum transaction fees of just $1 on US stocks.
- Receive free real-time market data, with no delays, at no extra cost.
- Create a stream of passive income by collecting dividend payouts.
- Use the world's most popular multi-asset class trading platform, MetaTrader 5.
You can get started right now by clicking the banner below and enjoying all of the features above and more!
How to invest in biotech stocks
Once you have downloaded your MetaTrader 5 trading platform provided by Admiral Markets for FREE, you can search for different biotech stocks directly from the platform. Just follow these simple steps:
- Open your MetaTrader 5 trading platform.
- Select the View tab from the top menu and then Market Watch.
- When this column opens, right-click and select Symbols.
- Search for the biotech stocks you want to trade and press ok, then drag it from the Market Watch window onto the chart.
A screenshot of the Symbols window in the MetaTrader 5 trading platform provided by Admiral Markets.
What are the top biotech stocks to buy?
Finding hot biotech stocks, creating a biotech stocks list to watch and identifying biotech companies to invest in does require some skill and time. Investors would often research and stay up to date with all of the latest developments and progress of a company's different biotech products.
However, active investors may focus on just a selection of the largest biotech companies stock prices to be able to stay abreast of what's happening. Passive investors may consider a biotech ETF which is discussed in more detail in the next section further down this article.
For now, let's have a look at some of the largest biotech stocks to watch which could be the some of the best biotech companies to invest in.
1. Amgen (#AMGN)
Amgen is an American biopharmaceutical company headquartered in California, United States and has more than 22,000 employees. The company is focused on molecular biology and biochemistry with its largest selling product an immunostimulator called Neulasta, which is designed to prevent infections for patients who are undergoing chemotherapy. Another major product line for Amgen is Enbrel which is used in the treatment of rheumatoid arthritis, as well as other autoimmune diseases.
The chart below shows Amgen's long-term, monthly price chart. The companies stock price moved sideways for much of 1999 to 2011 before breaking out in a long-term bull trend with price staying above its monthly 50-period moving average (red line) for quite some time.
Source: Admiral Markets MetaTrader 5, #AMGN, Monthly - Data range: from 1 January 1990 to 28 July 2020. Please note: Past performance is not a reliable indicator of future results.
2. Novo Nordisk A-S (#NVO)
Novo Nordisk A-S is a Danish pharmaceutical company founded in 1923 headquartered in Bagsværd, Denmark, with more than 40,000 employees around the world. The company has production facilities in eight countries and is considered a leader in diabetes care but is also involved in growth hormone therapy.
The long-term, monthly price chart of the company's share price below shows a strong uptrend since its inception with the biggest and most notable decline from 2015 to 2017 due to controversy regarding some of its drugs that were recalled in some European countries and a United States Department of Justice probe.
Source: Admiral Markets MetaTrader 5, #NVO, Monthly - Data range: from 1 January 1990 to 28 July 2020. Please note: Past performance is not a reliable indicator of future results.
Did you know that with an Admiral Markets Invest.MT5 account you can invest in a wide range of dividend stocks? This means you could potentially build a passive income stream from a portfolio of dividend-paying stocks from around the world! To open an account and learn more simply click on the banner below:
3. CSL (#CSL.AU)
CSL Limited is an interesting biotech company with a long history dating back to 1916 where it was a government body in Australia, created to develop vaccines. The company was privatised in 1994 and has focused on areas such as blood plasma derivatives, cell cultures, vaccines and genetic research. CSL produced the world's first vaccine for Swine Flu in 2009 and has designed a raft of other products for immunology, bleeding disorders, critical care and wound healing.
CSL's long-term price chart shown below shows a rather uninterrupted trend higher since privatising in 1994, with price action staying well above its 50-period moving average.
Source: Admiral Markets MetaTrader 5, #CSL, Monthly - Data range: from 1 May 1994 to 28 July 2020. Please note: Past performance is not a reliable indicator of future results.
4. Gilead Sciences (#GILD)
Gilead Sciences is an American biopharmaceutical company founded in 1987 and headquartered in California, US. The company's main focus is on antiviral drugs that are used in the treatment of HIV, influenza and hepatitis B and hepatitis C.
The company has been plagued with several class-action lawsuits over allegations they delayed development of some drugs in order maximise profits from previous-generation medications. However, after the outbreak of the coronavirus in 2020, the company received a lot of attention due to its drug Remdevisir and its ability to treat severe symptoms of Covid-19.
While the company's stock price did benefit from the news, it was short-lived with price settling back into a trading range that has developed since 2017, as the chart shows below:
Source: Admiral Markets MetaTrader 5, #GILD, Monthly - Data range: from 1 January 1992 to 28 July 2020. Please note: Past performance is not a reliable indicator of future results.
5. Biogen (#BIIB)
Biogen Inc is an American biotechnology company that was founded in 1978 and is headquartered in Cambridge, Massachusetts. The company was originally founded by several different prominent biologists and Nobel Prize winners. After merging with IDEC Pharmaceuticals in 2003, it became the third-largest biotech company in the world.
The company focuses mainly on neurological and neurodegenerative conditions. This includes conditions such as Alzheimer's and Parkinson's. However, its share price has struggled in recent years due to regulatory issues causing the suspension of medical trials of its new Alzheimer's drug, as seen in the long-term price chart below.
Source: Admiral Markets MetaTrader 5, #BIIB, Monthly - Data range: from 1 October 1991 to 28 July 2020. Please note: Past performance is not a reliable indicator of future results.
Did you know that with Admiral Markets you can also trade CFDs (Contracts for Difference) on more than 3,000+ instruments? Whether it's biotech stocks or any other asset class such as indices, commodities or foreign exchange you can use CFDs to trade both long and short. This means you could potentially profit from both rising and falling markets.
Click on the banner below to open your account today and trade with a broker regulated by the UK Financial Conduct Authority, while accessing market-leading trading terms, multi-platform support and online trading courses!
While some traders and investors will have the ability to track individual company prices, others who are more passive in their approach may choose to focus on a biotech ETF such as the SPDR S&P Biotech ETF, Vanguard Biotech ETF or iShares Nasdaq Biotechnology ETF. Instead of trying to find individual biotech companies to invest in or the best biotech stock for a portfolio, a biotech ETF offers the ability to gain exposure to the overall sector.
What is a biotech index and biotech ETF?
A biotech index is similar to a typical stock market index such as the FTSE 100 or Dow Jones 30. For example, the Nasdaq Biotechnology Index is a stock market index that is made up of companies listed on the Nasdaq stock exchange that are classified as either in the Biotechnology or Pharmaceutical industry.
The Nasdaq Biotechnology Index is not the only biotech stock index. Others include the S&P Biotech Index which is a stock market index that is made up of companies in the S&P Total Market Index that are classified in the GICS (Global Industry Classification Standard) biotechnology sub-industry.
An ETF, or Exchange Traded Fund, is a product that tracks an underlying index such as a biotech index. The ETF is essentially an investment fund that holds a collection of securities such as the stocks that make up the index it attempts to track. These ETFs are tradable on stock exchanges and are quite popular for many investors. Let's take a look at an example of one of these and how you would invest in biotech funds such as ETFs.
Best biotech ETF funds 2020 - SPDR S&P Biotech ETF (#XBI)
The SPDR (Standard and Poor's Depositary Receipt) ETFs are managed by asset management division State Street Global Advisors. They are known for managing one of the biggest ETFs in the United States called the SPDR S&P 500 ETF.
The company also manages the SPDR S&P Biotech ETF. According to the key features of this biotech ETF stock it “seeks to provide exposure to the Biotechnology segment of the S&P Total Market Index, which comprises the following sub-industries: Biotechnology."
As of 27 July 2020, the fund's top holdings include the following:
The fund actually holds around 136 different biotech stocks within it. They include some of the well-known companies such as Amgen and Biogen discussed earlier on in this article. However, the top fund holdings for July 2020 mainly consist of biotech stocks that surged higher in the year due to leading the race for a coronavirus vaccine. In fact, some stocks such as Novavax (#NVAX) - which is the fund's top holding - was up nearly 3,000% in the first half of 2020 due to impressive early stats in its Covid-19 vaccine trials.
Did you know that with the Admiral Markets Supreme Edition plugin you can upgrade your MetaTrader 5 trading platform and get access to actionable trading ideas from the Technical Insight™ indicator on thousands of instruments including biotech stocks and ETFs? To get your FREE, supercharged upgrade simply click on the banner below:
Below is the long-term, monthly price chart of the SPDR S&P Biotech ETF.
Source: Admiral Markets MetaTrader 5, #XBI, Monthly - Data range: from 1 February 2006 to 28 July 2020. Please note: Past performance is not a reliable indicator of future results.
While the swings in price have been quite large, the market has remained in a long-term uptrend since 2011. As biotech companies often spend a lot of money on research and development investors tend to position themselves for a 'good result'. However, if trials do not go as planned investors can be just as quick to exit. This is why biotech stocks are volatile and why taking a longer-term view may be more prudent.
Using the Technical Insight indicator from the FREE Admiral Markets Supreme Edition upgrade, users can find actionable trading ideas on thousands of stocks and ETFs, including the SPDR S&P Biotech ETF, as shown below by the active events for 28 July 2020:
A screenshot showing an example of searching for 'SPDR S&P Biotech ETF' in the Technical Insight™ indicator from the MetaTrader 5 Supreme Edition platform provided by Admiral Markets.
Why start investing in biotech stocks and ETFs with Admiral Markets?
- Trade and invest with a well-established, reputable company that is authorised and regulated by the Financial Conduct Authority (FCA).
- Invest and trade directly from the popular trading platform MetaTrader for PC, Mac, Web, Android and iOS operating systems.
- Upgrade your trading platform completely FREE to the Supreme Edition for actionable trading ideas on thousands of different stocks and ETFs.
- Open an Invest.MT5 account with Admiral Markets UK Ltd with as little as €1, so you can invest in stocks and ETFs from 15 of the largest stock exchanges in the world with fees starting at just $0.01 per share and minimum transactions fees of just $1 in US stocks!
- Open a Trade.MT4 or Trade.MT5 trading account to trade via CFDs (Contracts for Difference) which will allow you to go long and short on an instrument to potentially profit from both rising and falling markets.
- Access the top biotech ETF and a wide range of hot biotech stocks to trade CFDs on and to invest in.
Did you know that you can test your trading ideas and theories on thousands of different instruments and asset classes by opening a FREE demo trading account? By opening this account you can trade in a virtual trading environment until you are ready for a live account!
Why not test your ideas and theories today? Click on the banner below to get started!
About Admiral Markets
Admiral Markets is a multi-award winning, globally regulated Forex and CFD broker, offering trading on over 8,000 financial instruments via the world's most popular trading platforms: MetaTrader 4 and MetaTrader 5. Start trading today!
This material does not contain and should not be construed as containing investment advice, investment recommendations, an offer of or recommendation for any transactions in financial instruments. Please note that such trading analysis is not a reliable indicator for any current or future performance, as circumstances may change over time. Before making any investment decisions, you should seek advice from independent financial advisors to ensure you understand the risks.