Buy Biotech

Cramer named biotech as one of his themes for this week, saying the sector is the best group to own through this fall. His first pick was Onyx Pharmaceuticals .

Biotech’s been the best performer in the market so far this year, with Genentech up 45%, ImClone up 50% and Amgen up 37%. Cramer laid out five reasons why he thinks the trend should continue:

The last time U.S. banks were in crisis and interest rates were kept low – something that pushes big-money investors to pay up for the growth – biotech, which had that growth, did well. Plus, low inflation makes these companies’ future earnings – the reason investors want them – more valuable in real terms.

Second, Democrats love biotech companies, Cramer said. And anyone who’s watched even 30 seconds worth of news in the past year knows that the Blues are favored to win the White House.

Another reason biotech should do well is that, despite all the talk of expensive drugs, people are always willing to pay up.

Then there are all the takeovers that have been happening – six potential deals in July alone. Eli Lilly buying SGX Pharma, ViroPharma going after Lev Pharma, Sanofi-Aventis bidding for Acambis, Bristol-Myers making a move on ImClone and Roche looking to snatch up the part of Genentech it doesn’t already own. Even generic Teva Pharma is looking to acquire Barr.

And lastly, the fall season is usually filled with medical conferences and drug approvals, both great catalysts for biotech stocks.

Cramer likes Onyx Pharma. This $2.2 billion firm and its great cancer franchise might make a ripe takeover target a la Roche-Genentech, where a euro-backed company picks up one backed by the weaker American dollar.

The big driver for Onyx is Nexavar, a drug approved for different kinds of cancer that saw second-quarter sales rake in $165 million and grow 107% year-over-year. Cramer said he thinks sales will eventually top $1 billion. It’s true Nexavar was set back when a Phase III trial for use against a type of lung cancer was halted, but Genentechs' Avastin, an extremely successful drug, had its share of setbacks, too. So Cramer seemed unconcerned.

As for a takeover, Bayer, Onyx’s development partner for Nexavar, might step up and put those strong euros to work, Cramer said.

“We should still want biotech,” Cramer said, “and I think Onyx fits the profile of what we’re looking for exactly.”

Questions for Cramer?

Questions, comments, suggestions for the Mad Money website?