If any sector is offering value in what really appears to be a very overbought stock market, it is pharmaceutical, including biotechnology. Absolutely battered during the election cycle when rhetoric over drug prices got hot, the stocks have again been hit as President Trump said he also wants to see drug prices come down. Some biotech stocks are trading as cheap as big pharmaceuticals with much better growth prospects.
A series of new Jefferies research reports focus on four companies that are all rated Buy at the firm and have outstanding upside potential. While better suited for more aggressive accounts, they make sense for investors looking to put capital to work now.
This is a top large cap pick with big upside potential. Celgene Corp. (NASDAQ: CELG) is a very profitable biopharmaceutical company that develops and markets therapies for the treatment of hematologic malignancies, solid tumors and inflammatory conditions. The company’s key growth driver and contributor to the top line is Revlimid for the treatment of multiple myeloma and myelodysplastic syndromes.
Blockbuster blood cancer drug Revlimid continues to dominate. Pomalyst sales also continue to be solid, and cancer drug Abraxane is growing at a respectable rate. So the company continues to have a strong lineup of top-selling drugs. Top Wall Street analysts feel that Celgene is best large-cap de-risked growth story, with possible 15% to 20% earnings growth over the next five years, two new growth drivers (new oral pills for UC and Crohn’s), and the large pipeline of more than 35 partnerships of early-stage next-generation cancer drugs.
The analysts point out that while Johnson & Johnson’s and Genmab’s drug Darzalex will pose a competition threat to Revlimid, there are mitigating factors. They noted in the report:
Physicians expect less 1L and greater 2L Revlimid use for Celgene, somewhat offsetting, and while this suggests less potential US share growth, it provides reassurance that Darzalex’s adoption will not dramatically disrupt their core franchise. We adjusted our company model; however, this has a net neutral impact to Celgene’s valuation.
The Jefferies price target for the stock is $154, and the Wall Street consensus target is $140.13. The shares closed Friday at $125.77.
This company is trading at an astoundingly low forward multiple and offers big potential upside. Gilead Sciences Inc. (NASDAQ: GILD) discovers, develops and commercializes medicines in areas of unmet medical need in North America, South America, Europe and the Asia-Pacific.
Its products include Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults; and Harvoni, Sovaldi, Viread and Hepsera products for the treatment of liver disease.
The stock was hit on 2017 guidance, which was much lower than expected on diminishing hepatitis C revenue. However, the analyst is positive on the company’s HIV franchise going forward. It also cited new drug filings this year as potential catalysts.
The analyst cited these positives:
Biotech sentiment has gotten incrementally positive since our previous survey, mostly due to diminished concerns over policy/drug pricing and increased enthusiasm for mergers and acquisitions. Responses reinforced our view that Gilead is undervalued, with respondents believing the out year earnings-per-share floor is $6, and the stock trades at only 11 times that number, versus. the low/mid-teens multiple we believe is more appropriate.
Shareholders receive a 3.01% dividend. The $83 Jefferies price objective compares with the consensus target of $79.06. The shares closed last Friday at $69.06.