We have noted recently that large pharmaceuticals and biotech have been hammered, and now may be offering outstanding total return potential. While the larger pharmaceutical stocks have done better recently, the biotech sector has continued to lag, despite the fact that some of the mega-cap companies are trading cheaper than big pharmaceutical stocks.

A new JPMorgan research report says it time to buy the health care sector and sell consumer staples, which have run hard this year. The report notes what we have stressed recently, that while drug pricing rhetoric is an overhang, and may remain so through the election, big reform on pricing is unlikely.

Three top picks make the grade, and all are rated Overweight at JPMorgan.

Celgene

This is one of JPMorgan’s top biotech picks for 2016. Celgene Corp. (NASDAQ: CELG) has an outstanding partnered pipeline, which most think is low risk and has the potential to yield several blockbuster drugs. Certain Wall Street analysts also think the company can grow earnings 15% on a compounded annual growth rate basis going forward. Otezla, which treats psoriasis and psoriatic arthritis, had achieved considerable prescriptions among physicians, but the scripts have slowed after a solid launch, showing the importance for sales outside of the United States.

Celgene’s blockbuster blood cancer drug Revlimid continues to dominate. Pomalyst sales also continue to be solid. Cancer drug Abraxane is also growing at a respectable rate, so the company continues to have a strong lineup of top-selling drugs.

The stock jumped back in the early spring when Celgene and Natco came to a patent settlement, which removed a huge overhang on the stock that has been there for some time. Revlimid makes up over 60% of the company’s total revenue, and the analysts note that the company has discussed at its recent conference the benefits of longer duration Revlimid. JPMorgan notes that Celgene has a very compelling pipeline, as well as four existing Phase 3 trial assets that may add strong new drugs and revenue prior to the end of the decade

The JPMorgan price target for the stock is $136. The Wall Street consensus target is $135.38. The shares closed Tuesday at $106.18.

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BioMarin Pharmaceuticals

This is one of Wall Street’s favorites. First-quarter earnings were outstanding, and analysts are positive on the second quarter as well. BioMarin Pharmaceuticals Inc. (NASDAQ: BMRN) develops and commercializes innovative biopharmaceuticals for serious diseases and medical conditions. Its product portfolio comprises five approved products and multiple clinical and preclinical product candidates.

Over the past decade, BioMarin has become one of the top orphan drug companies, and it looks poised to stay there. The company is expected to post around $875 million in revenue this year and possibly around $1.1 billion next year, following the approval of Vimizim, an enzyme replacement therapy for Morquio syndrome. The JPMorgan team thinks the company reports continued growth in the drug and all the other major products. Earlier this year they said this about the company:

Overall, we continue to believe that Biomarin is uniquely positioned in biotech with an established and growing commercial portfolio, a broad and compelling new product pipeline, and an orphan disease focus with increasing scarcity value.

JPMorgan has a $120 price target. The consensus target is $112.56, and the stock closed on Tuesday at $92.02.

Spark Therapeutics

This company had a super-hot initial public offering early in 2015 and has come in nicely. Spark Therapeutics Inc. (NASDAQ: ONCE) focuses on the development of gene therapy products for patients suffering from debilitating genetic diseases. The company develops SPK-RPE65, which is in Phase 3 clinical trial for the treatment of genetic blinding conditions called inherited retinal diseases that are caused by non-sex-linked, autosomal recessive or mutations in the RPE65 gene. And it develops SPK-CHM, which is in Phase 1/2 clinical trial for the treatment of choroideremia.

The company has s collaboration agreement with Pfizer  for the development and commercialization of SPK-FIX product candidates in its gene therapy program for the treatment of hemophilia B. The company recently submitted positive data for the drug, and the JPMorgan analysts are encouraged by the efficacy presented to date.

The whopping $82 JPMorgan price target is well above the consensus target of $59.50. The shares closed most recently at $54.11.

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While outstanding ideas, these companies should be reserved more for aggressive accounts, ones that can sustain big moves in price up and down. With that caveat in place, they have solid upside potential and are well liked and followed across Wall Street.

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