Health care had an outstanding year in 2014. In fact the sector through last Friday was up 23.30%, which placed it third in the S&P 500 sector race, just behind utilities and technology. With numerous catalysts looming in 2015, many on Wall Street are predicting another solid year for the sector. A new research report from the analysts at Cowen highlights the firm’s top health care picks, many of which have some huge upside potential to the posted price targets.
The team at Cowen sees 2015 as another year of mergers and acquisitions. They also see the focus of acquiring companies shifting to adding branded pipeline assets to leverage the commercial infrastructure build that has been the core of the big acquisitions over the past couple of years. That means the tax inversion strategies are replaced by adding products that can add sales growth. That means biotech or special pharma companies with large product pipelines could be in big demand.
Here are some of the top health care picks from Cowen for 2015. All are rated Outperform at the firm.
Biogen Idec Inc. (NASDAQ: BIIB) is the top biotechnology pick at Cowen. Many on Wall Street are predicting that Tysabri earnings will have a meaningful jump this year. Wall Street analysts applauded the release of data on a monoclonal antibody called BIIB033, which is safe and tolerable in people, according to the combined results of two Phase 1 clinical trials that tested high doses in healthy people and those with multiple sclerosis. The Cowen analysts see the company as one of the most catalyst-rich stock in their universe, with the most upside on three specific events this year, including Tysabri SPMS, Alzheimer’s and the continued impressive LINGO Phase 2 data.
Cowen has a $389 price target for the stock. The Thomson/First Call consensus price target is lower at $378.67. Shares closed Tuesday at $334.65.
Gilead Sciences Inc. (NASDAQ: GILD) is another top biotech stock to buy at Cowen. It took a hit a few weeks ago when health care provider Express Scripts chose AbbVie’s hepatitis C drug over Gilead’s for exclusive distribution to its 25 million subscribers. Gilead struck back this week and announced they had reached a deal in which CVS will exclusively offer Gilead Sciences hepatitis C drugs. Its Harvoni will be on CVS’s preferred drug list and accessible for customers using the Affordable Care Act. The Cowen analysts and others on Wall Street are confident that the launch of Harvoni will significantly restrengthen the company’s HCV franchise trends. They also believe Gilead can generate significant cash, and it has a long track record of creating shareholder value through M&A and share repurchases.
Cowen places a $125 price target on the stock, while the consensus is posed at $122.83. Shares closed up Tuesday at $97.65.
Shire PLC (NASDAQ: SHPG) is the one of the Cowen’s analysts top picks in specialty pharma. The stock was absolutely destroyed back in the fall when AbbVie made it clear with tax inversion benefits gone that they wanted out of the planned acquisition of the company. While the stock dropped at one point over $100, Shire remains a quality pharmaceutical holding, with drugs for ulcerative colitis and hereditary angioedema in its portfolio, as well as the top selling Adderall XR for the treatment of ADHD. So it may very well become an acquisition candidate again. With a host of clinical trials that could prove positive for the company, and a net cash balance sheet, the stock makes very good sense for 2015.
The Cowen price target is $285, and the consensus target is $226.57. Shares closed Tuesday down slightly at $207.14.
Novartis A.G. (NYSE: NVS) is the world’s biggest drug-maker by sales and also the manufacturer of the fourth top-selling oncology drug in the world. Gleevec had $4.7 billion in sales, but it is showing 0% year-over year sales growth, which could prove troubling for Novartis, as physicians could be switching patients to other treatments and drugs. The company released LCZ696 data in the summer, and it is one of the company’s top pipeline prospects. The Cowen analysts maintain that the Novartis pipeline is outstanding, is largely validated and has the potential to deliver in 2015. The Cowen team maintains it will have the best growth among large pharmaceutical companies through 2020.
Novartis investors receive a 2.6% dividend. Cowen puts a $105 price target on the stock, and the consensus price target is set at $100.87. Novartis closed Tuesday at $91.67 a share.
Boston Scientific Corp. (NYSE: BSX) has gone sideways over the past year, and more analysts on Wall Street are warming up to this former medical devices high-flyer. The company has told analysts that it plans to continue to buy back more stock. It also indicated that it is shooting for 25% operating margins by 2017. The Cowen team highlighted enthusiasm for all three of the company’s major divisions, which include cardiovascular, CRM and medical-surgical, which they agree has operating margin expansion possibilities. Plus, with headline risk from litigation being resolved, the Cowen team likes the stock’s long-term viability.
Cowen’s price target is $15, which is the same as the consensus target. Boston Scientific shares close Tuesday at $13.70.
Illumina Inc. (NASDAQ: ILMN) is a Cowen top pick in life sciences. The company develops, manufactures and markets life science tools and integrated systems for the analysis of genetic variation. It is the dominant early leader in a growing genetic sequencing market, which some analysts predict could reach $20 billion annually in the near future. Ilumina’s development of groundbreaking technologies such as the $1,000 human genome have been game-changing. Illumina is poised to ride its innovation to years of success. Cowen is expecting fourth-quarter revenues to come in anywhere from $5 million to $25 million higher than current expectations.
The Cowen price target is $264. The consensus target is much lower at $204.24. Shares closed on Tuesday at $188.31.
Cepheid Inc. (NASDAQ: CPHD) is a Cowen top pick in the diagnostics category. It is a leading molecular diagnostics company that develops, manufactures and markets accurate yet easy-to-use molecular systems and tests. The Cowen team cites significant scarcity value, a best-in-class molecular platform technology, an industry-leading installed base, a very long potential runway for continued base business growth, and the broadest and deepest pipeline within the industry. All these factors, they say, make the stock a core holding for investors.
The Cowen price target is set at $62, and consensus target is lower at $54.97. The stock closed trading on Tuesday at $52.20.
Rite Aid Corp. (NYSE: RAD) is another one of Cowen’s top picks for 2015, and is one of the nation’s leading drugstore chains with nearly 4,600 stores in 31 states and the District of Columbia, as well as fiscal 2014 annual revenues of $25.5 billion. The Cowen team sees the company very favorably positioned in health care given its geographic overlap with Medicaid expansion and its push into clinics. They also think the fiscal year 2016 EBITDA numbers are conservative, which bodes well if Rite Aid surprises to the upside on earnings reports.
While the Cowen price target is $10, and the consensus target is $7.91, just above the stock’s close on Tuesday at $7.71.
The Cowen top picks offer a little of something for everybody. While all these stocks are solid buys for growth portfolios with some risk tolerance, it should be noted that there is always the potential for volatility in the sector.