Biotech stocks have grabbed the headlines early in 2019 after pharmaceutical giant Bristol-Myers Squibb Company (BMY) announced a $74 billion cash and stock deal to acquire Celgene Corporation (CELG), a company that specializes in cancer therapeutics. Eli Lilly and Company (LLY) followed up, saying that it is buying Loxo Oncology, Inc. (LOXO) for $8 billion to develop its pipeline of cancer drugs that target rare genetic mutations.

These deals so early in the year have sparked speculation of further merger and acquisition (M&A) activity within the healthcare space. Reduced valuations resulting from a year of bruising losses in the biotech sector have analysts and investors scouring other possible takeover prospects. A report issued by international law firm Baker McKenzie, in conjunction with Oxford Economics, anticipates that deals in the healthcare sector will increase to $331 billion in 2019, up 7% from last year.

"As companies compete to add drugs to their portfolios, we're seeing more early-stage acquisitions and licensing, sometimes before proof of concept," said Jane Hobson, healthcare M&A partner at Baker McKenzie, per CNBC.

Investors who want exposure to one of 2019's top performing sectors should consider adding one of these three biotechnology stocks to their portfolio.

Regeneron Pharmaceuticals, Inc. (REGN)

Headquartered in Tarrytown, New York, Regeneron Pharmaceuticals, Inc. (REGN) develops, manufactures and markets medicines that combat eye disease, cardiovascular disease, cancer and inflammation. Global investment and advisory firm Guggenheim Partners recently upgraded the company from "neutral" to "buy," citing the successful launch of its eczema drug Dupixent and its dominant position in the market selling eye medication Eylea. Regeneron stock, with a market capitalization of $44.17 billion, has a year-to-date (YTD) return of 9.25% and is up more than 11% over the past 12 months as of Jan. 11, 2019.

Regeneron's share price rallied 44% between May and August before forming a consolidation pattern over the fourth quarter. The bulls have taken control in early 2019 and pushed the price above the pattern's upper trendline, which now acts as a support area. Therefore, investors who want to buy the stock should look for retracements to the $380 level. Consider waiting for a bullish price candle to print, such as a piercing pattern, to confirm that momentum has shifted back to the upside.

Incyte Corporation (INCY)

Incyte Corporation (INCY), with a market cap of $15.99 billion, researches and develops small-molecule drugs. The company's flagship drug Jakafi treats two types of rare blood cancer. Incyte's pipeline includes both targeted and immune therapies that it is currently developing in oncology and autoimmune programs. As of Jan. 11, 2019, Incyte stock is up nearly 16% for the year as investors eye the biotech company as a possible takeover target. Analysts have a 12-month price target of $83.67 on the stock, 11% above Thursday's $72.12 closing price.

The April 6 gap that resulted from a failed experimental cancer drug stands out on Incyte's chart. Since that time, the stock has traded within a roughly 17-point trading range and rallied strongly off the lower trendline in late December. The price now comfortably sits above the 200-day simple moving average (SMA) and flirts with the idea of a breakout above the range-bound period. Consider taking an entry if the price pulls back to the $67 area, where it finds support from a 10-month downtrend line and the 200-day SMA.

Exelixis, Inc. (EXEL)

Exelixis, Inc. (EXEL) discovers, develops and markets treatments for thyroid cancer and renal cell carcinoma, or kidney cancer. The San Francisco-based company has partnerships with larger industry names such as Bristol-Myers Squibb, Sanofi (SNY) and Merck & Co., Inc. (MRK) to help develop its pipeline therapies. Exelixis has beaten analysts' earnings expectations over the past three consecutive quarters. The company's stock is up an impressive 22.37% YTD, outperforming the already impressive biotechnology industry average return by nearly 12% as of Jan. 11, 2019.

Exelixis shares tracked lower from late February through October. Sentiment turned bullish from early November, when the company exceeded the Street's top- and bottom-line projections due to strong sales of its popular drug Cabometyx. The price has recently surged above the neckline of an inverse head and shoulders pattern, suggesting further upside gains. The 50-day SMA is converging toward to the 200-day SMA, adding further conviction to the bull case. Traders could seek an entry point on a dip back to the pattern's neckline near $22 – the area now acts support.

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