With many investors starting to get more scared about China, scared about Europe and even scared about the coming interest rate hike cycle from the Federal Reserve, some smart money investors may be trying to figure out which stocks have already been heavily discounted to factor in bad news already. It may be impossible to ever know if a true bottom has ever been seen, but many investors love finding great companies where they feel that a sell-off has overly punished the share price.
If there is one sector that might not care too much about interest rates, that would be health care. Still, inside of health care, the biotech and pharma sectors may not be entirely immune to the woes of the world.
24/7 Wall St. wanted to evaluate the upside or downside prospects for some of the key stocks that have already pulled back handily from their highs. Before thinking too aggressively here, it is impossible to ever know if oversold stocks will recover. Some oversold stocks can have larger problems than were priced in, and investors should never, ever try to take “all-in” bets on a bottom. Trying to catch falling daggers can be quite painful.
In an effort to see which companies might be trading at a substantial discount, the amount of a pullback was targeted at being close to 20%. That is far greater than the market. We also looked at companies that were actively traded and had a market cap north of $5 billion, and most companies were deemed to be profitable, or at least had products on the market. All have substantially higher consensus analyst price targets as well.
Biogen Inc. (NASDAQ: BIIB) is still a de facto leader in biotech and in multiple sclerosis drugs. A recent bout of PML side-effect cases at a competitor has not really translated to big gains, and it seems that the post-earnings woes are continuing here. Biogen shares are now down a whopping 35% from their peak, and the reality is that investors probably built in way too much upside for the potential Alzheimer’s study results, which recently were shown to be less than positive.
Biogen is one of the largest biotechs around and has been worth over $100 billion before this sharp sell-off. It is also valued at less than 20 times 2016 earnings expectations. Biogen is down only 7% so far in 2015, despite how far it is off of its $480 or so high.
Shares of Biogen closed most recently at $314.85. The stock has a consensus analyst price target of $389.93 and a 52-week trading range of $290.85 to $480.18. The market cap is $74 billion.
Illumina Inc. (NASDAQ: ILMN) may not be down a full 20% from its peak above $242, but the stock has pulled back 15% from its highs. While it is easy to argue that its valuation needed a correction at about 60 times expected 2015 earnings, the reality is that double-digit revenue growth exists here, along with an average of about 20% in earnings growth ahead. The stock still is up 14% year to date, so the stock’s “being on-sale” may be relative.
The driving thematic force behind Illumina, now and for the coming years, is that it is the leader in genetic sequencing and array-based solutions. Certainly you have heard about the sub-$1,000 genome. If not, you have now, and you can thank Illumina for that. The company is leading in the race toward genetic analysis for personalized medicine.
Illumina shares closed at $208.59, within a 52-week trading range of $145.12 to $242.37. The consensus analyst price target is $237.75. It has a market cap of $30 billion.