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This new-product cycle has a number of pros bullish on the sector. Sensing opportunity, New York investor Stuart Wiesbrod founded Merlin Biomed, a private health-care fund, just three months ago. He estimates that the entire biotech industry has a stock-market value of about $110 billion. That's less than the market value of one big drug company like Merck or Pfizer, each with market values around $140 billion. Yet the biotech industry has 600 drugs in advanced development, vs. maybe 20 for each big drug company.
Biotech companies are notorious for moving ahead with tests too quickly. But, Weisbrod notes, "that still doesn't account for this huge discrepancy." His top picks, too, expect to have drugs approved within two years: Biochem Pharma (hepatitis) and Centocor (blood clots). Another fan of companies with late-stage drugs is Evan Sturza, editor of Sturza's Medical Investment Letter, whose top picks are Aviron (flu), Gilead Sciences (HIV, hepatitis) and Sepracor (side effects from Prozac, Claritin and others).
The safest approach to biotech is via mutual funds. Vanguard Health, Fidelity Select Health and Putnam Health Sciences have the best three-year returns, according to Lipper Analytical Services. But if you're playing with the speculative part of your portfolio, which is appropriate here, individual stocks pack the big thrill. Naturally, there's no telling if biotech stocks will break out of their slump anytime soon. But if you want to be there when they do, start nibbling now.
Daniel Kadlec can be reached at kadlec@time.com