Source: Jeremy Thompson on Flickr
Are you dizzy yet?
With the market careening downward and then soaring (partially) back up, investors might be getting motion sickness. Don't let the turbulence get in the way of scooping up some great long-term investments at good prices, though. Here are three biotech stocks that look particularly ripe for the picking thanks to the market gyrations.
1. Gilead Sciences (GILD 0.91%)
Will an economic slowdown in China cause patients with hepatitis C or HIV to quit taking their highly effective medications? Hardly. But turbulence in China has helped make Gilead an even better bargain than it was just a few days ago.
Gilead's shares have fallen almost 20% since the stock's year-to-date highs set in June. And it's not because the biotech has done anything wrong since then. Gilead blew away second-quarter revenue and earnings estimates. The company even increased its full-year revenue guidance.
Because of the overall market malaise, though, the big biotech's stock currently trades below nine times forward earnings estimates. Those earnings estimates shouldn't be in any jeopardy as a result of international financial worries -- Gilead's only real Chinese connection is that suppliers of raw materials used to manufacture several of its anti-viral drugs are located in China. That's not a cause for concern.
Growth from Gilead's Harvoni will probably slow somewhat, but the hepatitis C wonder drug seems poised to continue powering the company's earnings higher for quite a while. Meanwhile Truvada, Stribild, and other HIV drugs keep on generating billions of dollars. The biotech's pipeline remains strong. All told, Gilead certainly appears very attractive at its current valuation.
2. Celgene (CELG)
A similar case can be made for Celgene. Patients with conditions like blood cancer, psoriasis, or psoriatic arthritis aren't likely to turn their backs on the biotech's stable of drugs regardless of what happens on the macroeconomic scene.
Celgene's shares have fallen around 20% since late July. The company didn't make any heads spin with its second-quarter earnings announced around the time the stock began its decline, but those results were solid. Celgene even had some good news in August when it completed its acquisition of Receptos.
While its shares have taken a beating, Celgene isn't quite the bargain that Gilead is. The biotech's forward price-to-earnings multiple stands below 20. However, the recent stock pullback makes Celgene a tempting target. Analysts project that shares could move over 20% higher during the next 12 months, and I suspect they're right.
Blood cancer drug Revlimid continues to dominate. Pomalyst sales grew nearly 46% year-over-year last quarter. Cancer drug Abraxane is also growing at a respectable rate. And Otezla, which treats psoriasis and psoriatic arthritis, just might pick up some steam with Celgene's television campaign promoting the drug. Count Celgene as another big biotech that could quickly bounce back.
3. Biogen (BIIB 2.03%)
Biogen has lowered earnings expectations for the year -- but the reasons have nothing to do with China. Instead, the company faces more competition in the multiple sclerosis market and encountered pricing challenges for its blockbuster multiple sclerosis drug Tecfidera in Europe.
Biogen's shares began falling several months ago. However, the disappointing outlook caused the stock to really plummet in late July. The market's gyrations resulted in another 8% or so decline. Biogen's stock is now down 26% over the past three months.
The biotech's forward earnings multiple of 16 stands a little below that of Celgene but well above the super-low multiple claimed by Gilead. However, some on Wall Street think Biogen might have the most room to run in the next 12 months. The consensus price target among analysts covering the biotech represents a 30% jump over the next year.
Biogen could also have some huge winners in its pipeline. Perhaps the most exciting potential lies with the company's experimental Alzheimer's disease drugs. There's considerable risk on that front, though, considering what a difficult disease Alzheimer's is to understand and treat. Nevertheless, Biogen's share price seems quite likely to head higher on the strength of its MS drugs, Rituxan, and promising late-stage candidates.
The bigger they are...
Forget the old expression that "the bigger they are, the harder they fall". The fact that these three companies are among the biggest biotechs in the world makes them less likely to fall hard amid broader market turmoil.
I personally own two of these biotech stocks (Celgene and Gilead) and will likely add to my positions. All three should prove to be solid picks for long-term investors. When it comes to big biotechs in general, my view is that it's a pretty smart idea to be a bull in the China shop.
