Why do investors take risk? Certainly not to lose money. Investors take on risk because they want the prospect of bigger returns.
One of the sectors with higher risk and the highest reward is biotech.
Nothing says "home run" for a biotech stock like a new drug coming to market.
Over the last 10 years, the biotech sector has produced nearly 20% annualized gains.
That's a tasty reward for sure. But then again, the last decade has been a roaring bull market.
2020 could be different.
Investors are going have to be much more selective with their risk taking.
In prior years (like 2019), one could merely buy a basket of biotech stocks in an index or ETF and take the money to the bank.
Going forward, individual stock selection in the biotech space is the best strategy.
How can we find the winners? Or, more importantly, how can we avoid the losers?
"Slow and steady" is my key theme for success selecting stocks to own in the next year.
When the broader markets are expected to squeeze out 5% to 7%, hitting double digits will be a major victory.
Don't get me wrong, that might not be as sexy as prior years. But outperformance of any kind, especially if we can avoid losses should the market trade lower, is a good thing.
I'm sticking to our trusty Money Morning Stock VQScore™ model. It's an excellent way to narrow the biotech universe to a handful of stocks that investors should target in 2020.
One of the biggest keys is finding biotech stocks that are already making money. While those operating with large losses may have the highest upside, those with profits are better situated to withstand a more challenging market in 2020.
Here's the bottom line: Investors can still make solid returns owning biotech stocks next year. They just need to be selective.
Here are the five biotech stocks I'm targeting in 2020...