My Top Sector for 2026? Biotechnology and These Are My Top 2 Picks
After years of lagging, biotech is finally showing relative strength. Here are two small-cap companies I’m betting on.
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A better-than-expected CPI report and a very strong quarterly results from Micron (MU) have calmed some fears Thursday morning, but there is some selling into the strong open that we need to monitor closely.
The market must close near the highs of the day. If that happens, it will create some fear of missing out and attract buyers looking to catch a Santa Claus rally. Breadth is running around 70% positive, which is good news, but Micron is trading at intraday lows and is not being chased, which is a problem.
The good news about this action is that it is creating good opportunities in individual stocks. I’m particularly interested in the biotechnology sector (IBB) , which I believe will be a leader in 2026. This group has been an underperformer for years, but has finally started showing relative strength over the past couple of months.
The change in leadership at the FDA caused significant volatility within the biotech group, but now it looks like the focus is shifting to a more friendly approach that will help accelerate the approval process. That, combined with lower interest rates and the likelihood of greater merger and acquisition activity by big pharma, will likely be a catalyst. There is also increased use of AI in drug development, which should not only accelerate results but enhance innovation.
My Favorites
My two favorite stocks in the sector for 2026 are Alto Neuroscience (ANRO) and Delcath Systems (DCTH) . Both are relatively small but have unique technologies that show great promise.
Alto Neuroscience is still at the clinical stage but is developing precision psychiatric medicines, which means it tries to match treatments to biologically defined patient subgroups, rather than running “one-size-fits-all” trials for depression and schizophrenia populations. The thinking is that the best treatments for these maladies depend on individual characteristics.
Alto’s Precision Psychiatry Platform uses brain- and behavior-based biomarkers, such as EEG signatures, cognitive profiles, and sleep patterns, to identify which patients are more likely to respond to a given drug candidate.
Alto has five different programs in progress and has an FDA Fast Track designation for its cognitive impairment associated with schizophrenia (CIAS) study, which is expected to release top-line data in the first quarter of 2026.
ANRO stock recently broke out, but according to Tipranks.com, the average analyst target price is $30.71, which is 68% above the current price. I believe the stock will perform much better than that on favorable data results.
Delcath Systems is a commercial-stage biotechnology company that is already profitable. It is engaged in interventional oncology focused on liver-directed cancer therapy.
In the U.S., Delcath’s commercial product is the Hepzato kit, a drug/device combination that delivers the chemotherapy melphalan directly to the liver using Delcath’s Hepatic Delivery System (HDS). Hepzato is administered via a catheter-based procedure that infuses melphalan into the hepatic artery (which supplies the liver) and filters blood as it leaves the liver, reducing the amount of chemo that circulates through the rest of the body. It is a complex procedure that requires several medical specialties to work together, but the approach is being investigated for several other indications.
Delcath is ramping up the number of procedures, and current EPS estimates for 2026 are $0.34. The stock was beaten down following the last report, and the company announced it had authorized a $25 million share buyback.
DCTH stock is currently trading around $10 per share. Tipranks.com shows six Wall Street analysts offering 12-month price targets over the last threee months. The average price target is $24 with a high forecast of $30 and a low forecast of $18. The average price target represents a 139.52% change from the last price of $10.02.
Both these stocks are high risk, but have the potential for very high returns if the company's execute. These are stocks that I trade aggressively in order to control risk.
There are several other biotechnology names that I will discuss in future columns. I am optimistic that 2026 will be a breakout year for the biotechnology sector.
At the time of publication, Rev Shark was long DCTH and ANRO.
