Three Stem-Cell Stocks Ripe With Potential

Updated from 7:12 a.m. EDT

Investing in biotechnology companies is said to be like playing the slots, but hitting the jackpot can be even harder with stem-cell stocks.

Take Geron (GERN), the worldwide leader in embryonic stem-cell research. It might very well cure cancer and paralysis one of these days. But the company has cost investors plenty, with its stock spiraling from $75 to $8 a share this decade.

But after researching the stem-cell industry for more than 10 years, WBB Securities analyst Stephen Brozak finally sees some payoffs on the horizon. Brozak believes that Geron's day will come and says some smaller players with commercial products on the way could bring more immediate rewards.

Brozak points to Cytori (CYTX), a stem-cell company about to introduce a new medical device, as his favorite pick. Cytori's stock, down 7 cents to $5.67 Friday, trades near the middle of its 52-week range.

"If you want to make a play for stem cells here and now, you have to look at Cytori," insists Brozak, whose firm has provided consulting services to the company in the past. "We believe that they will have the first meaningful stem-cell application."

That product, a medical device that makes use of stem cells extracted from a patient's own fat, could earn regulatory approval later this year. It represents a novel breakthrough for patients undergoing breast surgery and, down the road, could bring relief to huge numbers of patients suffering from heart damage as well.

Meanwhile, Brozak stresses the importance of stock selection in the group.

"We've singled out companies with competitive advantages and significant partnerships that validate their franchises," says Brozak, whose firm has no position in stem-cell stocks themselves. In the end, "this is just as much an art as it is a science."

To watch Alix Steel's video take of this column, click here.