3 Biotech Stocks That Can Upgrade Your Portfolio

Image Source: Alexion Pharmaceuticals.

While small-cap biotech stocks can be a lot of fun to own, they can also test your emotions, as they often come with extreme volatility. However, winning biotech stocks can offer investors market-thumping returns, so even risk-averse investors shouldn't shy away from taking at least a small position in some of the industry's powerhouses.

We asked our team of Motley Fool contributors to share with our readers a biotech name that can help upgrade their portfolio returns, but with a modest amount of risk. Read below to discover why we think it might be wise to find a place in your portfolio for Celgene Corp,Gilead Sciences, orAlexion Pharmaceuticals.

Todd Campbell: In the past month, a broad market sell-off has created some intriguing buy opportunities in high-quality biotech stocks that could be deserving of a spot in investor portfolios. Celgene, for example, has lost about 12% from its summertime peak, and that drop-off may mean that investors looking to add a top-tier biotech company to their portfolios ought to consider it.

Celgene is the maker of the top-selling second-line multiple myeloma therapy, Revlimid -- and Revlimid's sales could be heading higher following a label expansion earlier this year for use in the first-line setting. Celgene also markets the fast-growing third-line multiple myeloma drug Pomalyst, the cancer drug Abraxane, and the newly-launched psoriasis drug Otezla.

Combined, sales of Celgene's drugs are expected to eclipse $9 billion this year, up from $7.67 billion in 2014, and that's got the company thinking its EPS will be north of $4.75 in 2015, up from $3.71 last year. Celgene's top- and bottom-line growth are compelling reasons to buy the company, but even more enticing could be Celgene's chances for future growth.

Thanks to a robust research budget that's funding a slate of promising drugs in its pipeline, as well as collaborations with some of biotech's most interesting young companies, includingJuno Therapeutics, there should be plenty of new drugs coming to market for Celgene in the coming decade. That suggests that this company is worth a closer look.

George Budwell: As far as top-notch biotechs go, my money is onGilead Sciences, bar none. Gilead is one of my personal favorite stocks because the company aspires to develop paradigm-changing medicines for life-threatening diseases.

In the HIV arena, for example, Gilead'ssingle-tablet regimen drugs, like Stribild, have demonstrated remarkable abilities to suppress the virus for long periods of time. As a result, HIV is no longer necessarily a death sentence, but rather a disease that can be effectively managed with lifelong therapy.

Gilead performed a similar small miracle by bringing Sovaldi, and its counterpart Harvoni, to market for hepatitis C. These drugs have been shown to essentially cure more than 90% of their target patient populations without the horrible side effects of interferon that led many patients to discontinue older therapies.

While analysts and pundits alike are concerned about Gilead's short-term growth prospects and the sustainability of the hepatitis C market, I think investors would be wise to keep the company's impressive history in mind. Personally, I'm fairly confident that this top biotech will continue to lead the pack when it comes to pharmaceutical innovation, making it a great stock to own for the long term.

Brian Feroldi: While I'm a personally a huge fan of both Gilead and Celgene, I think it may make sense to also look at a slightly smaller, yet still huge, biotech stock that is a great candidate to give your portfolio an upgrade: Alexion Pharmaceuticals.

Alexion has been on an amazing run for years, thanks solely to the huge sales growth of its one approved drug, Soliris, which treats two ultra-rare, life-threatening blood disorders:paroxysmal nocturnal hemoglobinuria and atypical hemolytic uremic syndrome. However, the company recently announced not one, but two regulatory wins earlier this month that should help to accelerate the company's revenue and profit growth and help reduce the company's risk profile by diversifying its revenue base.

These two new drugs,Kanuma andStensiq, have been cleared for sale in Europe, and are both currently pending FDA approval in the United States. Each of these drugs fit nicely into the company's area of expertise -- treatingultra-rare diseases -- and analysts are currently projecting both drugs to reach blockbuster status.

At 58 times trailing earnings, this stock is a bit spicier than Gilead or Celgene, and I have a hard time calling Alexion's shares "cheap." Given the catalysts of the two new drug launches in Europe, however, and the likelihood of their stateside approval, I think Alexion still has years of strong growth ahead of it, and can power a portfolio higher.

The article 3 Biotech Stocks That Can Upgrade Your Portfolio originally appeared on Fool.com.

Brian Feroldi owns shares of Gilead Sciences. George Budwell owns shares of Celgene, Gilead Sciences, and Juno Therapeutics. Todd Campbell owns shares of Celgene and Gilead Sciences. The Motley Fool owns and recommends Celgene and Gilead Sciences. The Motley Fool recommends Juno Therapeutics. 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.