I've been a long-standing fan of biotech expert John McCamant; however, I've been an even longer-term fan of his father, James McCamant, a pioneer in biotechnology whose research I've followed since the early 1980s.
 
In a rare interview in their Medical Technology Stock Letter, John turned to his father for his insights into the current state of the biotech market as well as some of his current favorite stocks in the sector:
 
"We recently sat down with James McCamant. Though he has since transitioned to the position of editor-at-large, Jim is still heavily involved in the biotech sector, and without question, we sleep easier at night with the knowledge that we have the full capacity to draw upon Jim's wisdom and experience, at any time.
 
"Jim pointed to the enormous detrimental impact that short-selling has had on the sector. Hedge funds have been actively and rampantly shorting individual biotech stocks, using manipulation to scare individual investors with the hope of increasing the profits on their short sale.
 
"Since the hedge funds that are primarily responsible have very large amounts of capital, they can live with the frequent large losses. This pattern has led to, in some cases, catastrophic haircuts in individual biotech stock prices.
 
"The point here is not to dwell on short-selling, per se. We mention it again because it has played a key role in creating what has become the interesting and unusual biotech investment opportunity that Jim sees.
 
"That is, there has never been a period before in the history of the biotech sector where we have had so many cheap stocks. In fact, we are in an extremely attractive situation right now in which several companies could rise 50% from their current valuations and still be at the beginning stages of a more major upward move.
 
"The process of shifting investor sentiment is often a difficult one, and usually takes a lot longer than we think it will, or even should, for that matter. However, keep in mind that when sentiment does shift, and it will, investors will likely be underestimating the upside.
 
"As Jim strongly pointed out, the stock market is presenting an unusual opportunity. There are currently more biotech stocks selling at prices which are dramatically below any real estimate of fair value than at any other time in the history of the industry.”
 
During the interview, John also asked his father to list some of his favorite individual stock investments within the biotech space. One of Jim's favorites happens to also be on John’s “buy” list for The Medical Technology Stock Letter – GenVec Inc. (Nasdaq:GNVC).
 
The company has a market capitalization of $137 million. Owning this stock, says John, has been an “excruciating task;” however, it is one that will be “well worth it in the long run, in Jim's view.
 
"Forget about the vaccine business, a real revenue contributor for the company that is getting virtually zero credit from The Street. At the end of the day, Jim believes that from these current stock price levels, the potential of (GNVC’s pancreatic cancer-fighter) TNFerade alone could lead to a move in GNVC's stock that surpasses 10 or even 20 times its current price.
 
"He is looking at the size of the different cancer markets within which it might ultimately be used, the eventual penetration of TNFerade in these markets, and the data which has been produced thus far,” John says. “He believes the odds are very good, and we fully agree, that these data will hold up, and that GNVC will go on to deliver vast rewards to faithful shareholders who stick it out.”
 
The stock, they say, has fallen on tougher times over the last several months, but John says, “If you believe in a company's approach as Jim does (and we do) with GNVC, then the wait will be worth it, and these are exactly the times to be buying.”
 
Another stock that Jim has ranked among his favorites, but is not yet on the “buy” list at The Medical Technology Stock Letter, is Ariad Pharmaceuticals, Inc. (Nasdaq:ARIA).
 
John says that the stock of this “intriguing cancer company” is now down over 50% from its highs from just last summer.

"The company's approximately $200 million market cap does not, in Jim's opinion, come close to representing the real value that lies within. He believes that they are a well-managed company,” John says. "This is evidenced, specifically, through the deal that ARIA did last year with Merck to jointly develop, on a global basis, ARIA's novel mTOR inhibitor, deforolimus.”
 
As part of this deal, he says, management made the “smart move” of keeping the rights to half of the profits from future U.S. sales. This oral drug candidate, he says, is currently being evaluated in a global Phase 3 trial in patients with metastatic soft-tissue and bone sarcomas.
 
"We wholeheartedly agree with Jim that the current environment is presenting an outstanding long-term growth opportunity,” John says. “In addition, we are able to choose from a vast array of companies-from development stage to fully integrated biotech companies-that all should provide excellent long-tern returns."

For 25 years, Steven Halpern has conducted an annual survey asking the leading newsletter advisors to select their favorite stocks for the year. His 2008 report features 120 top picks. You may download the report for free by clicking here.