Investors use the “defensive” label to describe businesses that enjoy steady demand for their products – like food, cigarettes and electric utilities.

The thinking goes, you want to own these sectors when the economy stinks. Their sales and cash flows should hold up better than retailers and hotel chains when consumers are broke.

This from Rob Fannon, guest editor on Today’s Money Morning:

Considering we’ve just had the worst credit crisis in 80 years, and one of the worst-ever bear markets in stocks, the new “defensiveness” shown by biotechnology stocks is extraordinary.

Biotech is typically a wild sector. Most people don’t think of it as place to find safe stocks. But have a look at the accompanying chart, which tracks the SPDR S&P Biotech ETF (XBI) over the past two years. This fund has big holdings in the 10 or so large biotechnology companies that have viable products bringing cash in the door.

As the chart shows, the XBI ETF is actually higher today than it was back in 2007. You can’t say that about oil, real estate, retail stocks, food stocks, tech stocks, gold stocks, or financial stocks.

The strength in biotech shares is confirmation of something I’ve been predicting for the past few months: We’re due for huge rally in biotechnology stocks.

Biotech companies are much different than giant pharmaceutical companies like Pfizer Inc. (PFE) or Merck & Co. Inc. (MRK). Biotech firms make their drugs from living cells, rather than from mixtures of chemical compounds. Biotech drugs treat life-threatening diseases – so recessions barely dent sales growth. People can pass on the cholesterol-lowering effects of Lipitor for a while, but stopping a cancer treatment can kill a patient in weeks to months.

And because most biotech drugs are made from living cells, they’re hard to copy. Right now, the U.S. Food and Drug Administration (FDA) has no approved pathway for generic biotech drugs. While Big Pharma is struggling with dwindling pipelines, big biotech companies are profitable, have growing sales, are generating tons of cash, and face no generic competition in the near term. Biotech bull markets are often good for gains of 300% to 500% – across the entire sector.

That’s why I think you should become familiar with the sector immediately.

I recommend you start with three of the hottest areas of biotech. Each one has the potential to generate new “blockbuster” drugs (drugs with annual sales of more than $1 billion). Those three key areas are:

• Metabolic disorders: “Metabolic syndrome” is a politically correct term for patients who are obese, diabetic, and face increased risk of heart disease. There are good drugs to control diabetes and help prevent heart disease, but no good drugs to treat obesity. With half of the U.S. population technically obese or overweight, an effective diet pill is the Holy Grail of drugs. Right now, Americans spend more than $50 billion per year on over-the-counter diet remedies. An FDA-approved fat pill would be a monster seller.

• Vaccines: With new products to prevent cervical cancer, avian flu, and the common cold, vaccines are back in vogue. Big Pharma player Wyeth (WYE) has one of the biggest vaccines businesses in the drug world. It’s part of the reason the company recently fetched a $68 billion buyout offer from Pfizer. Dutch biopharma player Crucell NV (ADR: CRXL) is the top remaining independent vaccine players in biotech. I predict it’ll be acquired before 2009 is over.

• Infectious diseases: The transformation of HIV from a death sentence to a chronic disease has turned the infectious-disease-drug market into a multibillion-dollar industry. Gilead Sciences Inc. (GILD) is the top player in this space. The next frontier is an effective treatment for Hepatitis C. Current drugs have terrible side effects and only “cure” 50% of patients. A handful of biotech companies – Vertex Pharmaceuticals Inc. (VRTX), Human Genome Sciences Inc. (HGSI), and Pharmasset Inc. (VRUS) – are nearing pivotal clinical data for next-generation Hepatitis C drugs.

There’s never been a more exciting time to be a biotech investor. Big Pharma companies have nearly $100 billion in cash that will keep buyout offers large. We have plenty of “Holy Grail” areas to focus on. And, as you’ve seen, we have a strong trend on our side.

P.S. I expect the biggest opportunity in biotech (or the entire stock market for that matter) will arrive on March 30. By this day, one company will announce test results for a new drug that could create the single biggest return of any investment I’ve ever found. One drug expert calls the potential market for this drug the “biggest untapped goldmine in the industry” and speculates that it would be worth $10 billion per year. Click here for the full details of the situation.

Source: The Market’s Safest Sector Also Has Enormous Potential to Rise

Phase 1 Investor editor Rob Fannon recently wrote that biotech was one of the few market sectors to show positive returns as  many other stocks were getting hammered. He sees great values in the sector.

There’s a good reason for this strength. A struggling economy won’t hurt biotech and medical as much as, say, an automaker, retailer, or restaurant chain… And biotech is one of the few industries showing solid sales growth.

A big holding in the S&P Biotech ETF, Gilead Sciences, just reported a 22% increase in quarterly sales growth. A slew of big biotech players report earnings next week, and I expect more great numbers.

Several ETFs give you broad exposure to biotech. Just enter “biotech” in the search box on www.etfconnect.com for a full list of funds. (A warning on the HOLDRs Biotech ETF – I’d avoid it… It’s ridiculously weighted toward just four high-profile companies.)

The really huge gains in biotech will be made with the best individual companies. Pick the right one and you could easily multiply your money by four or five times.

Today, Steve Sjuggerud of Daily Wealth calls biotech, the first “screaming buy” of 2008.

I asked Rob about the Genentech buyout offer from Roche – the one that I called the “catalyst” for the sector back in July.

Rob said the Genentech bid “is a bad move for Roche… but it’s terrific for the industry, for a couple reasons.”

• First, big, profitable biotech companies like Biogen (BIIB), Gilead (GILD), Genzyme (GENZ), or Celgene (CELG) are perceived as safer ways to play biotech. Like Genentech, these companies already have drugs on the market that command premium pricing and offer multiple years of remaining patent protection. They could be takeover candidates as well.

• Second, once Genentech is acquired, $40 billion of money dedicated to biotech will need to find a new home. Investors will search for new spots to park this cash… We’re seeing it already. Sector valuations are already on the rise.

According to Rob, the whole sector “is prone to swift surges of joy.” An easy and diversified way to own biotech is through the SPDR biotech ETF (XBI). It holds mostly mid- and large-cap companies.

But Rob says the real money will be made in small-cap biotechs – like the ones he often features in his newsletter. He told his readers, “I’m betting the entire small-cap space could jump as high as 25% in the coming months. And that could be just the beginning…”

I trust Rob, who’s finally bullish about biotech. Everything is lined up, as far as our “cheap, hated, uptrend” mantra goes. And the sector has just begun to rise. You haven’t missed a thing.

In short, if you haven’t bought biotech yet, buy it now! It’s the first “screaming buy” of 2008.

Likewise, Jim Nelson in the Penny Sleuth sees great profit opportunities for biotech right now.

You see, investors have been too busy buying up investment banks and mortgage fiascos. Now that the dust is starting to settle (even though we expect that to take quite a while), more and more interest is being paid to technologies and biotechs. That hasn’t happened on any large scale since the tech bubble burst.

A few weeks ago, Big Pharma went head first into this recent breakout, when Switzerland-based Roche Holdings offered to buy up the other 44% of Genetech Inc. (NYSE:DNA) that it didn’t own. The news of this possible deal sent shares flying 15% overnight.

Just a few days ago, Bristol-Myers Squibb (NYSE:BMY) offered to buy ImClone Systems (NASDAQ:IMCL) — a small $5 billion biotech — for $60 per share. While that one was instantly rejected it did send ImClone shares flying, giving investors a nice, one-day 40% gain.

These stories are starting to roll in now.