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Biotechnology stocks bubble

NEW YORK (TheStreet) - Shareholders feeling a touch of vertigo following the steep run-up in health care and biotech stocks need not reach for the medicine cabinet - or the exit - just yet, said Marshall Gordon, senior research analyst at ClearBridge Investments.

"You really have some powerful long-term tailwinds including innovation and the aging of the population which can continue to drive the stocks higher, " says Gordon.

The health care sector, as represented by the Health Care Select Sector SPDR ETF (XLV ), climbed 6% in the first quarter of 2015 compared to a flat S&P 500 index. Nearly a quarter of the XLV is comprised by pharmaceutical giants Johnson & Johnson (JNJ ) (10%), Pfizer (PFE ) (8%) and Merck (MRK ) (6%).

As for which major drug companies will fare best in the coming months, Gordon said the winners will be those companies that repeatedly deliver encouraging clinical results, as well as solid drug launches. He cites the Food and Drug Administration's early approval last month of Bristol-Myers Squibb's (BMY - Get Report ) advanced lung cancer drug Opdivo as an example of how a clinical success can generate momentum for a pharma giant's shares. Bristol's stock spiked 6% on the approval and have risen over 28% in the past 12 months.

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Gordon also dismissed the idea that investors may want to avoid U.S. drug companies due to the strengthening dollar and bet on European players instead.

"Currencies can make a difference in the short term but long-term success depends on bringing new drugs to market, " said Gordon.

Meanwhile, Gordon is even more bullish on the biotech sector, despite growing worries that the space is piercing bubble territory. The sector, as widely tracked by the iShares Nasdaq Biotechnology ETF (IBB ), spiked 12% in the first three months of 2015 as a result of merger deals that included AbbVie's (ABBV ) $21 billion acquisition of Pharmacyclics to gain access to its Imbruvica blood cancer treatment.

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