Biting Into Biotechnology
Nathaniel is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Global equity markets have been rocked recently as fears of rising interest rates and tightening monetary possible make their way into the minds of the street. I'm not going to try to predict the Federal Reserve's next move nor any other central bank. I would rather look for opportunity in the market during these times of turbulence. Earlier this year I owned an array of biotechnology names including Gilead Sciences (NASDAQ: GILD), Celgene (NASDAQ: CELG), and Amgen (NASDAQ: AMGN) before taking gains at the end of the first quarter. Since then, these names continued much higher before topping out this month. These stocks have been hit especially hard over the last week in line with the broad market.
Now does anyone actually think people are going to stop getting sick just because Bernanke cuts back his spending? Of course not, that's why I'm looking for an opportunity to get back into these biotechnology companies on weakness. I would like to highlight three industry leading diversified biotechnology companies investors should consider on a broad market pullback.
I've been a fan of Gilead Sciences for some time now. Management has taken a bold yet rewarding strategy in terms of research. The company focus its efforts on developing treatments to currently unmet but highly demanded illnesses. As of today, the company has its hands in everything from HIV, AIDS, Liver Disease, Cardiovascular, Respiratory, Oncology, and Inflammation. In every one of these categories Gilead has at least one drug pending approval or in Phase 3 trials. Recently, I've focused my attention on companies with exposure to the growing diabetes epidemic taking over control. Gilead's medication Ranolazine, currently in Phase 3 trials, has already been approved for other uses but recently the company discovered its potential benefits for diabetics. Many diabetics face constant chest pains, however, with the use of Ranolazine these pains are likely to diminish greatly. Additionally, the company has 21 Phase 2 trials in the works which will allow the company continued growth in the years ahead. While the forward price to earnings multiple remains high, 25 times, this valuation can be easily justified. The PEG ratio sits below 1, at 0.98, which typically signals a buying opportunity. Analysts are expecting 10% growth this year, followed by 47.2% growth next year.
Up next, Celgene, while shares have soared over 44% this year alone, shares have traded down just over 13% from its 52 week high. Like Gilead, Celgene has a deep pipeline of high quality treatments. The company is making advancements across the medical sector with progress being seen in Myeloma, MDS, Acute Myeloid Luekemia, Lymphoma, Anemia, and Inflammation. In terms on cancer related progress, the company has 22 treatments awaiting FDA approval and an additional 12 treatments currently making ways through Phase 3 trials. As far as revenue streams go, the company has 7 products currently on the market. Its medication Vidaza, has held up especially well since losing patent protection. A generic alternative still hasn't been fully developed leading me to believe the company will still reap benefits for another couple years. Similar to Gilead, Celgene has a remarkably low PEG ratio, 0.90, thus signalling the company's growth potential is undervalued. Analysts are expecting strong, 20% earnings growth over the next two years, thereby justifying the 21 times forward earnings multiple.
Better with age
Lastly, Amgen, perhaps the performer out of the three is the most established. Shares have return 12% this year, down 15% from the highsseen back in April. Since 1980 Amgen has been a leader in the biotechnology industry. The company has 10 products current on the market including many familiar names such as Embrel. The company, alongside over 100 partners, has developed a great pipeline with 45 drugs participating in Phase 1 through Phase 3 trials. The company announced earlier this month a partnership with Cytokinetics to expands its licensing agreement on the omecamtiv mecarbil drug in Japan. This is one of many deals the company has pursued to grow its presence in the country. Cytokinetics will announce its Phase 2 results in August, if positive, both company's could see significant price appreciation. Being the elder of the group, the company trades at only 13 times earnings. At these levels, Amgen is a value play, considering 11.5% and 14.5% estimated growth, respectively, over the next two years.
While the market looks to predict Ben's every move, sit back and get your shopping list ready. I am looking to take advantage of any broad weakness to repurchase my positions in Gilead, Celgene, and Amgen. All three companies are well diversified and positioned well for long term growth. Gilead and Celgene look under-priced at these levels. Both companies trade with PEG ratios below 1, leading me to believe shares are trading at a discount to growth.
Every in-the-know biotech investor has an eye on Celgene. Shares have skyrocketed this year as the company outlined a plan to almost triple its profits in only a few years. But should you buy the story Celgene is selling? Make sure you understand the key opportunities and risks facing this company by picking up The Motley Fool's brand new premium report on Celgene. To claim your copy today, simply click here now.
Nathaniel Matherson has no position in any stocks mentioned. The Motley Fool recommends Celgene and Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!