RBC Says Buy Big Biotechs Now for Possible Big 2016 Gains

Print Email

We have talked about it for months here at 24/7 Wall St., and now many on Wall Street are talking about it as well. The selling in biotech, much of which was started by a tweet from Democratic presidential candidate Hillary Clinton last fall over drug pricing, absolutely destroyed the sector. Finally, that concern seems to be waning and investors are returning to the battered sector. Stocks got so cheap that they were trading as if there was no or little value in their product pipeline, an unheard of metric in biotech.

A new RBC research report notes that the XBI biotech index was up 13% over the past month, versus 5% for the S&P 500, and it contends that the political chatter and overhang worry is going away. The report also noted that at the recent conventions there was little to no mention of drug pricing.

What really look attractive now are the large cap leaders, and RBC has four rated Overweight.

Amgen

This company posted outstanding second-quarter earnings and 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, reaching millions of patients around the world and developing a pipeline of medicines with breakaway potential.

The company posted revenues above expectations and showed strong expense management. It also raised guidance for revenues and earnings, and many on Wall Street think the numbers could be conservative. Amgen also reaffirmed interest in mergers and acquisitions activity as a way to sustain long-term growth.

Many on Wall Street point to the company’s tremendous pipeline and outstanding forward earnings and revenue capabilities. Amgen’s 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 industry’s deepest biosimilar pipelines, which is expected to generate upward of $3 billion in annual sales in the years ahead.

Amgen shareholders receive a 2.33% dividend. The RBC price target for the stock is $190, and the Wall Street consensus target is right in line at $189.94. Shares closed Friday at $172.03.

Biogen

This stock is down a stunning 40% from highs that were printed in March of last year. Biogen Inc. (NASDAQ: BIIB) discovers, develops and delivers to patients worldwide innovative therapies for the treatment of neurodegenerative diseases, hematologic conditions and autoimmune disorders. Founded in 1978, Biogen is one of the world’s oldest independent biotech companies, and patients worldwide benefit from its leading multiple sclerosis (MS) and innovative hemophilia therapies.

While many on Wall Street acknowledged in the past that the company’s core MS drug market is facing challenges going forward, with most diagnosed patients now treated, payers limiting net benefits from price increases and competing entrants expected. With those issues in mind, the firm is still positive on Tysabri, especially for secondary-progressive multiple sclerosis, with upcoming clinical data a big factor.

The analysts also feel that a combination of cost reductions in tandem with the still strong MS franchise, which may not be as challenged by competitors as some on Wall Street think, can help the company beat earnings estimates this year. With a strong pipeline, the stock is a solid choice for aggressive growth investors. When Biogen posted outstanding earnings, the stock rallied sharply.

The RBC price target is $375, while consensus target is lower at $363.31. The stock closed Friday at $289.93.