Celgene Corporation (CELG), Cytokinetics, Inc. (CYTK), Astex Pharmaceuticals, Inc. (ASTX): Is the Biotech Bubble About to Burst?

Stocks like Cytokinetics, Inc. (NASDAQ:CYTK) and Astex Pharmaceuticals, Inc. (NASDAQ:ASTX) would likely fall heavily if the presumed biotech bubble burst. Of course, when bubbles burst they tend to take most of the stocks in the sector down.

The bubble that wasn’t
Back to the original headline question, though: Is the biotech bubble about to burst? My view is that it won’t — because it’s not really a bubble after all.

I looked at the top 10 holdings of the iShares NASDAQ Biotechnology Index (ETF) (NASDAQ:IBB). These 10 stocks comprise more than 55% of the total assets held by the ETF. If we were seeing a bubble in biotech stocks, how many of these would you think would be at historically high price-to-earnings multiples? Maybe eight or nine of them? At least half?

The actual answer is that only two of the top 10 biotech stocks in the ETF are at their five-year highs for valuation — Biogen Idec Inc. (NASDAQ:BIIB) and Gilead Sciences, Inc. (NASDAQ:GILD). I would argue that, like Celgene Corporation (NASDAQ:CELG), neither of these stocks are too highly priced considering their earnings potential. Gilead, especially, looks strong in my view with its solid HIV franchise and big opportunities ahead stemming from its frontrunner status in commercializing an all-oral hepatitis C virus drug.

Sure, some biotech stocks are overvalued. I don’t think the sector as a whole is, though. Biotech could become “bubblicious” at some point. For now, though, I suspect we’ll see more stocks continue to pop than have their bubbles burst.

The article Is the Biotech Bubble About to Burst? originally appeared on Fool.com.

Fool contributor Keith Speights has no position in any stocks mentioned. The Motley Fool recommends Celgene and Gilead Sciences. 

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