Healthcare Business

Q3 Worst for Biotech in 7 Years: Which Large Cap Leaders to Buy Now

After racing to all-time highs in late July, the Nasdaq Biotechnology Index (NBI) and the NYSE Arca Biotechnology Index (BTK) then proceeded to decline 18.0% and 18.2% respectively. What really put the hammer down at the end of the quarter was the Turing Pharmaceutical pricing scandal, and then comments from presidential candidate Hillary Clinton on drug pricing and needed reforms. It was the exact kind of populist political rhetoric that can melt a sector.

A new report from Cowen notes that while the sell-off was very large and painful, and the inevitable “bear market” chatter on the sector heated up, the biotech indexes are tracking right about flat for the year, in line with the other major indexes. The firm says the way to play it is with large cap sector leaders that can beat earnings estimates. Cowen also thinks third-quarter earnings beats could highlight the risk of not owning biotech now.

We scanned the Cowen coverage universe for four top stocks that they think can beat earnings estimates for the third quarter. All are rated Outperform.

Amgen

After posting outstanding second-quarter earnings, the biotech giant remains a top stock for investors to buy. Amgen Inc. (NASDAQ: AMGN) focuses on areas of high unmet medical need and leverages its biologics manufacturing expertise to strive for solutions that improve health outcomes and dramatically improve people’s lives. A biotechnology pioneer since 1980, Amgen has grown to be one of the world’s leading independent biotechnology companies, has reached millions of patients around the world and is developing a pipeline of medicines with breakaway potential.

Many on Wall Street point to Amgen’s tremendous pipeline and outstanding forward earnings and revenue capabilities. Its double-digit earnings and revenue growth rate is expected to continue for the foreseeable future because of the company’s very deep clinical pipeline, which includes potential blockbusters Repatha for high cholesterol and Kyprolis for relapsed multiple myeloma. Amgen also has one of the sector’s deepest biosimilar pipelines, which is expected to generate upward of $3 billion in annual sales in the years ahead.

ALSO READ: Big Biotech Is Cheap With Strong Cash Flows: 3 to Buy Before Earnings

Amgen continues to trim its gigantic workforce as it bows to activist hedge fund shareholders such as Dan Loeb, who has pushed the biotech giant to split into two separate companies to boost shareholder value.

This is a Wall Street and Cowen favorite, and the analyst expects an earnings beat and a guidance raise. It also expects top and bottom line upside driven by Enbrel (with additional price hikes thrown in for good measure), as well as most other products and solid cost control.

Amgen shareholders are paid a 2.05% dividend. The Cowen price target is $165, and the Thomson/First Call consensus target is higher at $184.75. Shares closed Monday at $154.47.