The Best Cheap Stocks to Invest in Now with Breakout Potential

The biotech industry is offering some of the best cheap stocks to invest in now.

You see, biotech stocks have faltered in the last two weeks. Since March 20, the Nasdaq Biotechnology Index has dipped nearly 7%.

But this isn't a time to sell. We're adding to our biotech stock positions now.

While some stock market prognosticators claim we're in a biotech bubble, that is not the case. The last two weeks have just been a speed bump for the market.

cheap stocks to invest in"The correction we're seeing now seems to happen every year at about this time, like clockwork," Money Morning's Biotech Investing Strategist Ernie Tremblay said. "There are always things going on in the news that seem to explain the drop, but the meta-picture is simply this: the market breathes in, and the market breathes out."

We saw a very similar pattern last year at this time. From mid-February through mid-April of 2014, the Nasdaq biotech index dipped 20%. At the time, the same Wall Street experts came out with their "sky is falling" predictions.

But Tremblay preached patience. Investors who stayed in biotech enjoyed the sector's 37% climb through the year's end.

This year is more of the same. So now that biotech is giving us a buying opportunity, we look for cheap stocks to invest in. Here are three bargain biotechs we like now...

Cheap Stocks to Invest In No.1: Orexigen Therapeutics Inc. (Nasdaq: OREX)

The first stock that Tremblay recommends is Orexigen Therapeutics Inc. (Nasdaq: OREX). It's a play on the United States' $20 billion-a-year weight-loss industry.

More than two-thirds of adults and one-third of children in the United States are overweight. And despite those high numbers, there are still very few weight reduction medications.

Many diet drugs come with severe side effects, and others aren't covered by insurance companies. That's where Orexigen comes in.

Orexigen Therapeutics Inc. (Nasdaq: OREX)

Recent Price: $7.68

Market Cap: $980.8 million

Institutional Ownership: 79.6%

Its new weight-loss drug Contrave was shown to reduce heart attacks by 30%, strokes by 37%, and heart-related deaths by 74% in its interim trials. Instead of producing side effects, it showed long-term health improvements independent of weight loss.

"If these numbers hold up, there is no doctor who would balk at effecting substantial cardiovascular health improvement in his patients, while helping them keep their weight under control," Tremblay said. "And it's unlikely that any insurance company wouldn't put the drug on its formulary [the list of drugs it covers]."

Tremblay cautions investors from getting too caught up in interim results, because the drug still hasn't received full FDA approval. But the potential for the drug, and its impact on OREX stock is still massive.

"If the final data bears out the interim results, we could be looking at the real gold in the weight-loss hills - one of the biggest medical blockbusters of all time," Tremblay said.

OREX shares trade at $7.68, even after climbing 26% in 2015. If Contrave continues to show positive results like it already has, the stock won't remain cheap for long.

Money Morning members: Continue reading for two more of the best cheap stocks to invest in now...

Cheap Stocks to Invest In No. 2: Achaeogen Inc. (Nasdaq: AKAO)

Another one of our favorite cheap stocks to invest in now is Achaogen Inc. (Nasdaq: AKAO). The company's lead drug, Plazomicin, is designed to treat infections caused by a multi-drug resistant bacteria.

According to the CDC, antibiotic-resistant bacteria make 2 million people sick and kill 23,000 each year in the United States alone. That costs the U.S. economy more than $35 billion a year in medical expenses. Another $35 billion is lost due to lower productivity.

Achaeogen Inc. (Nasdaq: AKAO)

Recent Price: $7.86

Market Cap: $141.0 million

Institutional Ownership: 91%

Despite the need for newer, better drugs, many pharmaceutical companies won't develop them because of the costs associated with development.

That was until the FDA started granting Qualified Infectious Disease Product (QIDP) designations to companies developing promising new medications.

"A QIDP designation grants a manufacturer the right to receive Priority Review and Fast Track status with the FDA, significantly shortening the time to drug approval and allowing special consulting during the process with experts from the agency," Tremblay explained. "QIDPs also receive an additional five years of marketing exclusivity."

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Achaeogen was given QIDP designation from the FDA and the company is currently in Phase III trials for the drug.

AKAO stock is trading at a discount now at $7.86 a share. The company announced on April 1 that drug results may not be available until 2017. That's provided us an excellent buy-in point because the stock has the potential for triple-digit gains.

"Given the desperate need for a drug like this, AKAO is in an excellent position to deliver fantastic returns," Tremblay said.

Analysts polled by Thomson/First Call have an average price target of $21 for AKAO with a high of $24. Those would be gains of 167% and 205% from today's price.

Cheap Stocks to Invest In No. 3: Organovo Holdings Inc. (Nasdaq: ONVO)

Our third pick is Organovo Holdings Inc. (NYSE: ONVO). The company develops functional human tissues that are used in drug development, biological research, and as therapeutic implants for degenerating tissues and organs.

"It makes the tissue with an exciting new technology called 3D Bioprinting, which identifies key architectural and compositional elements of a target tissue, and then creates a design that can be utilized by a 'bioprinter' to generate that tissue in the laboratory," Tremblay explained.

Organovo Holdings Inc. (Nasdaq: ONVO)

Recent Price: $3.72

Market Cap: $298.9 million

Institutional Ownership: 19.7%

With this "personalized medicine," companies can create treatments for each patient based on his or her genetic profile. This is counter to the traditional one-drug-fits-all approach we normally see with pharmaceuticals.

The Alliance of Regenerative Medicine (ARM) says the cell therapy and regenerative medicine fields have already produced more than $1.8 billion in revenue. All told, these personalized medicine companies have more than 2,500 clinical trials currently underway.

ONVO stock has pulled back in 2015, trading at just $3.72 per share. That's down from a 52-week high the stock hit in July 2014. With a market cap of just $300 million, ONVO stock is a speculative play. But the upside is tremendous for investors willing to take on some short-term risk.

"The possibilities for using this company's products in both medical research and in clinical applications represent limitless income potential - and, I believe, an extraordinary opportunity for the long-term investor," Tremblay said.

The Bottom Line: Biotech stocks are presenting some of the best cheap stocks to invest in now. Instead of running from the market, we recommend buying these long-term stocks that are trading at discounted prices. Our three picks now are OREX, AKAO, and ONVO.

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