By Hilary Kramer of InvestorPlace
NEW YORK (TheStreet) -- I am convinced that now is the time to invest in biotech. If you're familiar with biotech at all, you know it has traditionally been a risky sector to invest in -- shares of Human Genome Sciences (HGSI) recently plunged more than 10% in one day after the FDA questioned the effectiveness of its new Lupus drug. But as the industry develops and grows, it's becoming easier to minimize risk and identify the likely winners. And with the right strategy, you can make big profits in biotech.
Finding Biotech Stocks to Buy -- Look for Takeover TargetsOne of the very best ways to profit from the biotech sector right now is to buy companies that are likely targets for acquisition. Many of the big pharmaceutical companies are in a precarious position right now. They've cut costs as far as they can and many of their blockbuster drugs are going to go off patent in the next three years. The next logical step in big pharma's search for growth is to start going after biotechs with a drug or two in the pipeline.
Plus, as companies start to feel more confident in the new, more corporate-friendly environment in Washington, merger and acquisition activity is sure to pick up. I've got two biotech companies in particular that are both candidates for acquisition and just plain good buys right now.
Biotech Stock #1: ShireThe first stock I want to tell you about is Shire (SHPGY). I think it's almost a foregone conclusion that Shire, even with a $13 billion market cap, will eventually go to the highest bidder. But even if this acquisition doesn't come to fruition soon, Shire has other factors going for it that make it an appealing buy now.
Shire is a biopharmaceutical company based in Ireland, but U.S. investors can own shares by buying the American Depositary Receipts (ADRs). The company has two key business segments: best-in-class ADHD medications and "orphan drugs." These are drugs that treat diseases affecting fewer than 200,000 people, and the U.S. Orphan Drug Act of 1983 provides incentives to encourage development of these treatments that might otherwise be skipped over because of the relatively small number of patients who would benefit.
More From InvestorPlace
|6 Sinking Stocks to Abandon Now|
|10 Famous Warren Buffett Quotes for Any Market|
|3 Hidden Takeover Targets to Double Your Money|
Select the service that is right for you!COMPARE ALL SERVICES
Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.
- $2.5+ million portfolio
- Large-cap and dividend focus
- Intraday trade alerts from Cramer
- Weekly roundups
Access the tool that DOMINATES the Russell 2000 and the S&P 500.
- Buy, hold, or sell recommendations for over 4,300 stocks
- Unlimited research reports on your favorite stocks
- A custom stock screener
- Upgrade/downgrade alerts
Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.
- Diversified model portfolio of dividend stocks
- Alerts when market news affect the portfolio
- Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.
- Real Money + Doug Kass + 15 more Wall Street Pros
- Intraday commentary & news
- Ultra-actionable trading ideas
Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.
- 100+ monthly options trading ideas
- Actionable options commentary & news
- Real-time trading community
- Options TV