What FinTwit Isn't Telling You About These Biotech Stocks

You don't need 7investing to tell you that investors are experiencing a historic bull market. To put it mildly, investors are increasingly optimistic. About what? Well, that's a question worth asking.

Investors are increasingly optimistic about the pace of the economic recovery -- at the macro level, anyway. It's not farfetched to expect record amounts of cash and wealth generation, which has been primarily "trapped" within equities and real estate in the last 12 months, to be unleashed in other parts of the economy as the pandemic loosens its grip. That would usher in a swift economic recovery unlike anything in recent memory, perhaps ever.

Investors are also increasingly optimistic about innovation. Although that's not necessarily misplaced, individual investors must guard against unbounded optimism and remain objective. This is especially true when it comes to biotechnology and genomics.

On the one hand, we're making significant advances in our understanding of biology that allow us to standardize biological parts. If we can standardize living systems, then we can engineer them with reproducible results. And if we can apply engineering principles to biology, then we can use biology as technology to improve medicine, industrial processes, agriculture, and much more.

On the other hand, biology remains incredibly complex. The optimism surrounding certain trends, such as the "genomics revolution" or CRISPR gene editing, often dumbs down the complexity of biology to make the opportunities easier to understand for non-experts. Unfortunately, that also makes it easier to dismiss or completely overlook important risks facing new technologies. As company valuations become more and more distorted, those risks become amplified.

One of the problems with the level of optimism in the current stock market is simple: It has become easier to buy tickers than to invest in businesses. Many biotech stocks are trading on momentum and stories alone. Today, we're increasingly seeing several years of revenue growth and clinical trial results or regulatory milestones -- which have yet to be achieved -- to be priced into biotech stocks. This can lead to disastrous outcomes when the stories fall apart or future events don't play out quite as investors expect.

7investing Lead Advisors Manisha Samy and Maxx Chatsko sat down to discuss the importance of balancing optimism with objectivity, the dangers of chasing story stocks and momentum stocks, and why your research into biotech stocks and genomics stocks should expand beyond social media or FinTwit. Most important, they remind all investors to seek information, not confirmation and discussed the following companies as examples:

• Amyris (NASDAQ: AMRS)
  
• Bionano Genomics (NASDAQ: BNGO)
  
• CRISPR Therapeutics (NASDAQ: CRSP)
  
• DermTech (NASDAQ: DMTK)
  
• Editas Medicine (NASDAQ: EDIT)
  
• Gevo (NASDAQ: GEVO)