Last month, AbbVie (NYSE:ABBV) bought out Pharmacyclics for $262 a share. This was not your typical pharmaceutical industry acquisition because, as recently as 2009, Pharmacyclics was trading for less than $1 a share. Less than $1 per share! Talk about a massive return on investment! That’s how much upside there is in biotechnology microcap or small cap stocks… if you know how to pick the right stock.
If you are looking to bet big on pharmaceutical stocks, please note that not all biotechnology stocks will yield as spectacularly as the Pharmacyclics buyout. In fact, such buyouts are quite rare. Don’t assume that just because such a deal (with its fantastic increase in value) happened, such deals are commonplace. Indeed, when it comes to risk profiles, biotechnology is one of the riskiest market sectors you can invest in. However, as shown by the Pharmacyclics deal, with great risks come very great rewards.
If you are looking to buy a microcap with a strong upward potential, keep your eyes peeled on the following factors: how unique its technology is, how far along its technology is in the regulatory approval pipeline, how big the market is for its technology, and the potential for a buyout by a giant existing pharma company looking to acquire its way into growth by buying hot drug portfolios. These are the factors that catapulted Pharmacyclics’ stock. You can apply these factors to the many biotech stocks out there that are currently trading under $3. Indeed, there are many interesting stocks trading under $1. Use these filters to identify potential winners.
The key here is your timeline. You must be willing and able to hold on to the stock for an extended period of time-even as much as ten years. It also helps if you buy into the stock at the lowest price possible.