The Federal Reserve’s new leader had her “irrational exuberance” moment in her most recent congressional testimony. 

#-ad_banner-#Boy, am I glad she got that out of the way.

Janet Yellen’s predecessor Alan Greenspan uttered those two words back in 1996, and like him, Yellen seemed to be trying to jawbone stock prices down before they form a bubble and scuttle central bank policy.

In 1996 after Greenspan’s remarks, stocks went into a temporary tailspin the next morning — yet an investor who ignored his advance and bought into the S&P 500 a day later has earned a 268% return since then.

Likewise, Yellen probably created a big opportunity this month when she trashed biotech and social media stocks in general, saying they have “overstretched valuations.” Stocks sold off on her remarks. 

The problem with a statement that lumps together all the stocks in a sector is that you end up throwing out some gems along with the high-flying duds.

I’m not sure about social media stocks, but I do know there are at least three biotech stocks out there with the kind of hyperbolic growth and profit potential that justifies their rising share prices. 

Three biotech stocks that should benefit are Regeneron Pharmaceuticals (Nasdaq: REGN), Anika Therapeutics (Nasdaq: ANIK) and Repligen (Nasdaq: RGEN) — all of them in the red-hot biopharmaceutical sector with stellar prospects.

All three stocks are components of the Barron’s 400 Index, a collection of U.S. companies that are seen as having rock-solid fundamentals in addition to outstanding growth prospects.

Regeneron has a great story in addition to great metrics. Sanofi (NYSE: SNY) recently increased its stake in the company to 22.5%, and the two drug companies are working on a potential billion-dollar cholesterol drug. Regeneron also gets strong results from its macular degeneration and colon cancer treatments, and has promising candidates in the pipeline to treat eczema and diabetic macular edema.

Regeneron expects year-over-year growth in earnings per share (EPS) of 160% this year. In its most recent quarter, revenue was up 42% from a year ago, and its cash levels have grown at a torrid rate of 111% over the past 12 months compared with the previous period. REGN’s forward price-to-earnings (P/E) ratio is 25.3 — rich, but not “overstretched.”

Anika Therapeutics also has a great story. The company makes therapeutic products for tissue protection, healing and repair based on polymers found in the human body. Its products are used in orthopedic and ophthalmic surgery, and it also has a veterinary division.

ANIK is up 143% over the past 52 weeks, but in my view, it has further to go. In its most recent quarter, revenue more than doubled from the same period last year, rising 123%. Its price/book (P/B) ratio is only 4.5, and its forward P/E is only 27.3. In addition, its debt as a percentage of assets is a low 2.7%.

Repligen is a biopharmaceutical that is going where other drug companies have not: It makes bioprocessing products for use in producing monoclonal antibodies, and is a leading manufacturer of Protein A reagents to boost cell culture production. It also has a candidate process in trials to create synthetic human hormones.

Repligen is perhaps the most speculative of the three, but it also holds great promise, not least because of its exciting hormone process. RGEN is up 139% over the past 52 weeks. The stock has a heady forward P/E of 65.5, but its P/B ratio is just under 7.0, and its cash position is up 47.7% from the preceding 12 months. 

Risks to Consider: Biopharmaceuticals are all about the pipeline. If a potential new blockbuster drug falls off the tracks during trials or gets a thumbs-down from the FDA, the impact can be devastating. (That’s not the track record of these three smart companies, though.) The FDA is not known for its swift approval action on the kinds of new drugs these companies develop, but competitive drugs can crop up unexpectedly.

Action To Take –> Any of these biopharmaceuticals can be bought now; they will be reporting earnings in coming weeks. It may make sense to average into them as a basket investment – you can invest equal amounts in them to get some insulation from the possibility that one falters while the others keep forging ahead.

Biopharmaceutical companies offer exactly the kind of potential my colleague Andy Obermueller hunts for in his Game-Changing Stocks advisory. In his latest report, Andy has identified five “game-changing” trends with the potential to revolutionize the way we live our lives — and make early investors a killing. To learn more about these developing technologies — and the companies behind them — follow this link.