Forget Marijuana Stocks: Buy These 3 Biotech Stocks Instead

By Keith Speights Markets Fool.com

Why are investors so excited and intrigued by marijuana stocks? Some want to ride the wave of growing acceptance of cannabis-based products. Others like the momentum. I think, though, that investors can find better risk-versus-reward potential in three biotech stocks: Organovo Holdings (NASDAQ: ONVO), Exelixis (NASDAQ: EXEL), and AbbVie (NYSE: ABBV). Here's why to forget marijuana stocks and instead invest in these biotechs.

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Image source: Getty Images

Growing acceptance

People were once resistant but now are more accepting. Yes, we could be talking about marijuana. However, the statement also applies to 3-D bioprinted tissues. Any conversation about these bioprinted tissues needs to include Organovo.

Organovo first rolled out a 3-D bioprinted human liver tissue in 2014. The company launched its second product, human kidney tissue, earlier this year. Organovo's main customers were and are pharmaceutical companies looking to detect toxicity as early in the drug discovery and development process as possible.

Convincing scientists who were accustomed to using animal models and in vitro two-dimensional human tissue wasn't an easy task. Organovo is steadily accomplishing that goal, though. The company now counts 10 of the top 25 global pharmaceutical companies as customers.

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Organovo is still tiny, just like most marijuana stocks. However, the company's revenue growth is impressive -- sales soared 358% year over year last quarter. Other products and services will be rolled out in the next few years, which should allow Organovo to keep growing revenue at a solid rate.

Hot momentum

Two of the five top-performing biotech stocks in 2016 are developing cannabinoid drugs. One that isn't but certainly has sizzling momentum is Exelixis. The biotech's stock price has nearly tripled this year.

One nice thing about Exelixis is that its success hasn't been based on highly speculative views of its prospects. The company already has two drugs on the market: medullary thyroid cancer treatment Cometriq and Cabometyx. Exelixis' tremendous stock performance in 2016 stemmed from excitement over Cabometyx. And that excitement is justified.

The drug has already gained a 20% market share as a second-line treatment for kidney cancer and 35% market share as a third-line treatment. Cabometyx's big opportunity, though, is as a potential first-line therapy for kidney cancer. The drug shone in a mid-stage study, outperforming current standard of care Sutent.

Exelixis is moving forward with seeking approval as a first-line treatment in kidney cancer based on the study's results.A green light from the FDA for the additional indication could be yet another major catalyst for Exelixis. The hot momentum for this stock problem isn't over yet.

Distant cousin

If you're fascinated by investing in marijuana stocks but are leery of doing so, perhaps you could consider a distant cousin of sorts -- AbbVie. No, AbbVie doesn't market a cannabinoid, nor is it developing one. However, the company does sell Marinol, which was the first FDA-approved drug with dronabinol as its active ingredient. Dronabinol is a man-made form of THC, which is considered the psychoactive component of marijuana.

Marinol isn't a reason to buy AbbVie. The company doesn't even break out sales for the drug. However, the products for which AbbVie does report sales details provides plenty of justification for buying the stock.

Humira stands at the top of the list. It's one of the best-selling drugs of all time, and sales continue to grow by solid double-digit percentages. The company also has a great up-and-coming winner with cancer drug Imbruvica plus a promising pipeline.

Don't forget AbbVie's dividend. The yield stands over 4% right now. AbbVie recently increased its quarterly dividend by 12.3%.

Down to business

Investors shouldn't get caught up in the hype of any stocks, including marijuana stocks. When you invest, you're buying part of a business. The primary reason to buy that business is that there are solid prospects that it will grow earnings and drive shares higher.

The problem with some marijuana stocks is that their business models are dubious. That's not the case with Organovo, Exelixis, or AbbVie. Of course, there are risks with any stock. These three biotechs are no exceptions. But if you're looking to make money without taking on an enormous amount of risk, you'll probably be better off forgetting marijuana stocks and considering these biotech stocks instead.

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Keith Speights has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Exelixis. 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.