NEW YORK (TheStreet) -- Shareholders feeling a touch of vertigo following the steep run-up in health care and biotech stocks need not reach for the medicine cabinet -- or the exit -- just yet, said Marshall Gordon, senior research analyst at ClearBridge Investments.
"You really have some powerful long-term tailwinds including innovation and the aging of the population which can continue to drive the stocks higher," says Gordon.
The health care sector, as represented by the Health Care Select Sector SPDR ETF (XLV) - Get Report, climbed 6% in the first quarter of 2015 compared to a flat S&P 500 index. Nearly a quarter of the XLV is comprised by pharmaceutical giants Johnson & Johnson (JNJ) - Get Report (10%), Pfizer (PFE) - Get Report (8%) and Merck (MRK) - Get Report (6%).
As for which major drug companies will fare best in the coming months, Gordon said the winners will be those companies that repeatedly deliver encouraging clinical results, as well as solid drug launches. He cites the Food and Drug Administration's early approval last month of Bristol-Myers Squibb's (BMY) - Get Report advanced lung cancer drug Opdivo as an example of how a clinical success can generate momentum for a pharma giant's shares. Bristol's stock spiked 6% on the approval and have risen over 28% in the past 12 months.
Gordon also dismissed the idea that investors may want to avoid U.S. drug companies due to the strengthening dollar and bet on European players instead.
"Currencies can make a difference in the short term but long-term success depends on bringing new drugs to market," said Gordon.
Meanwhile, Gordon is even more bullish on the biotech sector, despite growing worries that the space is piercing bubble territory. The sector, as widely tracked by the iShares Nasdaq Biotechnology ETF (IBB) - Get Report, spiked 12% in the first three months of 2015 as a result of merger deals that included AbbVie's (ABBV) - Get Report $21 billion acquisition of Pharmacyclics to gain access to its Imbruvica blood cancer treatment.
"Certainly valuations are toward the higher end of historical ranges, but I don't see it as overvalued," said Gordon. "The big-cap biotechs have very full pipelines and visible earnings growth for the next few years, so they remain attractive." Among Gordon's top biotech picks are Biogen Idec (BIIB) - Get Report and BioMarin Pharmaceutical (BMRN) - Get Report.
He's also positive on shares of Spark Therapeutics (ONCE) - Get Report, which proved to be the top initial public offering winner in the first quarter with a 237% return. The gene therapy treatment company raised $161 million in late January, pricing seven million shares at $23. Shares of the biotech closed the quarter at $77.50 and Gordon said Spark's stock could catch fire again later this year.
"I think they will be able to deliver the next gene therapy to market in the next 12 to 18 months," said Gordon.
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