October traditionally has been a weak month for stocks. However, biotech stocks have shown significant resilience so far this year, with the iShares Nasdaq Biotechnology ETF (IBB) gaining 11.5% year-to-date (YTD). Additionally, the broader Health Care Select Sector SPDR ETF (XLV) has risen 15.1% YTD, better than the S&P 500’s increase of 9% during the same period.

Health problems like Nonalcoholic Steatohepatitis (NASH) and food allergies are expected to keep drug manufacturers busy in the coming months. Moreover, successful drug trials at several biopharma and FDA approvals are going to benefit drug makers. Given the present circumstances, biotech companies appear promising bets for October.

NASH, Food Allergies to Bring Significant Gains for Drugmakers

Countries like the United States that have a fatty diet range of 5% to 20% are expected to be more affected by NASH, per a Reuters report. It is projected to create a market of around $20 billion to $35 billion in the next two years. In fact, in the United States alone, 15 million people are projected to suffer from NASH.

Biopharma behemoths, Gilead Sciences, Inc. (GILD - Free Report) and Allergan plc (AGN - Free Report) made significant progress in tapping the NASH market last year. Smaller companies like Viking Therapeutics, Inc. with VK2809 and Madrigal Pharmaceuticals Inc MDGL with MGL-3196 are also in the fray.

Additionally, life-threatening food allergies are a concern in the United States. According to the Centers for Disease Control and Prevention, from 1997 to 2016, severe allergic reactions like anaphylaxis jumped 70% in kids aged less than 18 years in the United States. Per a study from FAIR Health, in the United States, private insurance claims related to the diagnoses of anaphylaxis soared 377% from 2007 to 2016.

A Few Key Developments

Alexion Pharmaceuticals, Inc. (ALXN - Free Report) announced that the phase III study, PREVENT, on its lead drug Soliris was successful. Data showed that treatment with Soliris reduced the risk of Neuromyelitis Optica Spectrum Disorder relapse by 94.2% compared to placebo. Gilead announced that it plans to launch authorized generic versions of its leading hepatitis C virus treatments — Epclusa and Harvoni.

The FDA lifted the clinical hold for Sarepta Therapeutics, Inc’s (SRPT- Free Report) Duchenne muscular dystrophy micro-dystrophin gene therapy program. Separately, Sarepta expects the European Commission to adopt the Committee for Medicinal Products for Human Use’s opinion by year-end 2018.

Amarin Corporation plc (AMRN - Free Report) reported positive top-line results from the cardiovascular outcomes trial, REDUCE-IT on Vascepa, which is derived from fish oil. The FDA issued a clear statement reaffirming the positive benefit-risk profile of ACADIA Pharmaceuticals Inc’s (ACAD - Free Report) Nuplazid for patients with Parkinson’s disease psychosis.

Biotech Stocks on Strong Ground

The Zacks Medical - Drugs industry, part of the broader Zacks Medical Sector, has outperformed its own sector over the past year. While the stocks in this industry have collectively gained 9.4%, the Zacks Medical Sector has rallied 8.4%.

Also, the industry currently carries a Zacks Industry Rank #102, which placed it in the top 40% of more than 250 Zacks industries. Our research shows that the top 50% of the Zacks-ranked industries outperform the bottom 50% by a factor of more than 2 to 1.

On the earnings front, out of the 155 companies in the Zacks Medical - Drugs Industry, 128 reported earnings for the second quarter. Out of the 128, 64 delivered earnings beat while 13 managed to meet the consensus estimate.

5 Biotech Stocks to Buy Now

With around 15 million people in the United States affected by NASH and 70% rise in anaphylaxis in U.S. kids aged less than 18, between 1997 and 2016, biopharmaceutical companies are looking to tap this market. Moreover, an encouraging biotech stock outlook added to the positive sentiment.

In this context, we have selected five stocks that are expected to move north following successful drug developments. These stocks carry a Zacks Rank #1 (Strong Buy) or 2 (Buy).

Champions Oncology, Inc. (CSBR - Free Report) is a developer of technology solutions and products to personalize the development and use of oncology drugs in the United States.

The company is based in Hackensack, NJ and carries a Zacks Rank #1. The company has expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved more than 100% over the past 60 days.

CytoDyn Inc. (CYDY - Free Report) is a biotech company focused on clinical development and potential commercialization of humanized monoclonal antibodies for treatment and prevention of HIV infection.

The company is based in Vancouver, WA, and carries a Zacks Rank #2. The company has expected earnings growth rate of 31.03% for the current year. The Zacks Consensus Estimate for the current year has improved 4.8% over the past 60 days.

Infinity Pharmaceuticals, Inc. (INFI - Free Report) is a biopharmaceutical company that develops medicines for people with cancer in the United States.

The company is based in Cambridge, MA and carries a Zacks Rank #2. The company has expected earnings growth rate of 31.33% for the current year. The Zacks Consensus Estimate for the current year has improved 24% over the past 60 days.

Nektar Therapeutics (NKTR - Free Report) is a research-based biopharmaceutical company that discovers and develops drug candidates for cancer, auto-immune disease and chronic pain in the United States.

The company is based in San Francisco, CA and carries a Zacks Rank #2. The company has expected earnings growth rate of more than 100% for the current year. The Zacks Consensus Estimate for the current year has improved 12.5% over the past 60 days.

Zoetis Inc. (ZTS - Free Report) is a developer, manufacturer, and marketer of veterinary vaccines and medicines in the United States and worldwide.

The company is based in Parsippany, NJ and carries a Zacks Rank #2. The company has expected earnings growth of 27.87% for the current year. The Zacks Consensus Estimate for the current year has improved 0.7% over the past 60 days.