Ian Cooper

Biotech stocks offer some of the most explosive opportunities.

That is, if you spot the right ones.

For example, some the hottest ideas can be found in weight loss drugs, cancer treatments known as ADCs (antibody-drug conjugates), and in gene-editing.

Look at CRISPR Therapeutics (CRSP), for example. Not long ago, it received US FDA approval for its gene-editing therapy for sickle cell disease and transfusion-dependent beta-thalassemia, a genetic disorder that prevents the production of hemoglobin in the blood and requires regular blood transfusions. 

With that news, we watched CRISPR jump from about $40 to $70.

Or, look at Eli Lilly (LLY). Thanks to strong demand for obesity medication, the stock popped from about $580 to $760, and it’s still moving higher.

Of course, there are many more. But you get the point.

What makes biotech even hotter is that major drug companies are on a shopping spree.

Over the next few years, drug giants could lose billions to patent expirations. According to EY analysts, the top 20 giants could lose about $180 billion in sales by the end of the decade. To stop some of the potential bloodshed, companies are building up their pipelines, bring in fresh new drugs with multi-billion-dollar potential. For example, most recently, Johnson & Johnson said it would acquire Ambrx Biopharma for $2 billion. Pfizer acquired Seagen for $43 billion.

Some of the best ways to trade biotech is with ETFs, such as:

SPDR S&P Biotech ETF (XBI)

One of the best ways to diversify at less cost is with a biotech ETF, such as the SPDR S&P Biotech ETF (XBI). With an expense ratio of 0.35%, the ETF offers exposure to the S&P Biotechnology Select Industry Index.

ProShares Ultra NASDAQ Biotechnology (BIB)

With an expense ratio of 0.95%, the BIB ETF seeks daily investment results, before fees and expenses, that correspond to two times (2x) the daily performance of the Nasdaq Biotechnology Index.

iShares Biotechnology ETF (IBB)

With an expense ratio of 0.44%, the IBB ETF tracks the investment results of an index composed of U.S.-listed equities in the biotechnology sector.