In July, Fed chair Janet Yellen called the valuations of biotech stocks "stretched." Since then, however, these stocks have risen more than 20 percent. They're on track to exceed their five-year compounded annual growth rate of 31 percent, comparing favorably with a rate of 12.7 percent for the S&P 500.
"The sector's revenues are expected to grow 38 percent this quarter," said CNBC correspondent Bertha Coombs. "That's almost four times more than the health-care sector as a whole and 10times faster than the overall S&P. And it's driven by a number of new drug launches for some big names."
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Vertex has risen nearly 50 percent since January. "It's not expected to be profitable until next year, when sales of its cystic fibrosis drugs are expected to nearly double and total revenues are expected to nearly triple, from $550 million to $1.4 billion," Coombs said.
Regeneron is being heavily bet on as well—it has a price-to-earnings ratio of 109 and is trading 4 percent over the mean analyst price target. After two consecutive years of earnings declines, the antibody maker is expected to earn more than $10 per share this year, according to Wall Street estimates, up from its $3.80 in 2013.
2014 health care ETF performance leaders
- First Trust NYSE Arca Biotechnology ETF: 34.2 percent
- PowerShares Dynamic Biotech and Genome: 28.7 percent
- SPDR S&P Biotech: 24.6 percent
- iShares Nasdaq Biotechnology: 22.8 percent
- Market Vectors Biotech: 21.2 percent
(Performance is year-to-date through Oct. 23, Source ETF.com)
Gilead Sciences has soared on the strength of its blockbuster Hepatitis C drug Sovaldi, potentially moving even further with the introduction of its new Harvoni treatment, which combines Sovaldi with the drug ledipasvir.
"Sales of the Hepatitis C drugs combined could top $12 billion per quarter in 2015," Coombs noted. Gillead is trading at about 5 percent below the median Wall Street price target, though the target may be raised after the drugmaker reports earnings on Tuesday—its shares have rallied near-10 percent over the past five trading sessions.