3 Biotech Stocks Under $5 That Could Explode Higher in 2016

Source: Wikimedia Commons.

As we head into the close of 2015, investors are starting to dump their laggards for tax purposes. While that may be a smart move for some investors depending on how their portfolio is structured, this wave of tax-selling often creates great long-term pick-ups for bargain hunters.

Among biotech stocks in particular, we've seen a major price decline in numerous small-cap biopharmas as investors have seemingly lost their patience waiting on news. But that doesn't mean all is lost. In fact, I think Agenus , Exelixis , and Geron Corp. could all have breakout years in 2016. One thing they all have in common is that shares are trading under $5 right now! Let's take a deeper look at why these three biotechs may be primed to push higher in the New Year.

Agenus has been falling on a lack of news flowWhen investors were gobbling up every biopharma working in the red-hot immunotherapy field, Agenus' stock was on fire. After the company failed to reveal a lead product candidate, or even an indication for that matter, the company's stock fell out of favor, dropping over 54% from its 52-week highs according to S&P Capital IQ:

AGEN data by YCharts

On the bright side, we did learn from a recent investor update that Agenus expanded its immuno-oncology collaborations with both Incyte and Merck & Co., implying that these programs are progressing nicely. Having said that, the company remained vague about its closely-watched cancer immunotherapy platform, providing investors with only a broad-stroke overview.

Looking ahead, Agenus will more than likely start to pull back the curtain on its immuno-oncology clinical program in 2016, which should heat up the market's interest in this small-cap biopharma. The key issue to understand is that patience is definitely required with this company because of the intense competition in the immuno-oncology space.

After all, nearly all biopharmas have been reluctant to say much about their most promising immuno-oncology candidates during their early stages of development. Agenus is simply playing follow the leader in this regard, but good things could come to those who are willing to wait while this process plays out.

Exelixis has settled down after a good year but remains well off its 52-week highsExelixis has had a transformational year in many ways -- from the positive late-stage data read out for cabozantinib (trade name: Cometriq) in second-line kidney cancer, to the U.S. and Swiss approval of cobimetinib(trade name: Cotellic) as a treatment for advanced skin cancer patients expressing the BRAF V600 mutation. These two events have helped to drive the company's shares up by over 240% in 2015:

EXEL data by YCharts

Even so, the stock has pulled back by around 25% from its former highs. While some of this weakness can probably be attributed to profit taking after such a remarkable run, there is some concern that Cometriq won't perform particularly well in the second-line kidney cancer space. The issue is thatBristol-Myers Squibb's Opdivo exhibited a significant survival advantage in this exact same indication at essentially the same time asCometriq's top-line data readout, leading to another label expansion for Bristol's new franchise drug.

Even so, analysts covering this stock think the company's sales will grow by 130% next year, and the drugmaker still has a robust clinical pipeline to create further value going forward. As a result, Exelixis is definitely one growth stock to keep an eye on next year.

Geron's lead clinical candidate might be a blockbuster-in-waitingThis clinical-stage biopharma's stock has gained over 50% this year, fueled by the strong clinical progress of its first-in-class telomerase inhibitor, imetelstat, as a treatment for a variety of blood-based cancers:

GERN data by YCharts

Earlier this month, Geron gave a presentation at the American Society of Hematology meeting, suggesting that imetelstat is an effective and safe treatment foressential thrombocythemia based on a small midstage trial. The implication from this clinical update is that Geron and its partner, Johnson & Johnson -- via its biotech subsidiary Janssen -- will soon advance the drug into pivotal-stage trials, as previously planned.

Interestingly enough, Johnson & Johnson has already listed imetelstat as one of its top experimental drug candidates heading into 2019, indicating that the drug behemoth thinks it has blockbuster potential:

Source: J&J.

As Johnson & Johnson has had one of the hottest hands in terms of developing new drugs over the past five years, I think investors shouldn't take this show of confidence lightly.

Are these three biotechs good buys right now?I like all three of these stocks at their current prices. That said, these are somewhat risky stocks in that they aren't producing much in the way of revenue at this stage and are more or less wholly dependent on their clinical programs to create value moving forward. So I don't recommend going hog wild in terms of snapping up shares right now. Instead, investors may want to grab a few shares and slowly build a larger position as their clinical programs mature.

The article 3 Biotech Stocks Under $5 That Could Explode Higher in 2016 originally appeared on Fool.com.

George Budwell has no position in any stocks mentioned. The Motley Fool recommends Exelixis and Johnson & Johnson. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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