Although the industry tracking iShares Nasdaq Biotechnology ETF is littered with volatile stocks that led it 18.8% lower last year, it does contain a handful of companies suitable even for nervous investors. Investing in the industry can seem like a catch-22: The best biotechs have a long history of market-beating returns, but hanging on through inevitable downturns can be incredibly stressful.
Strong odds of steadily increasing profits is the best remedy for shareholder anxiety. We reached out to three Motley Fool contributors and asked them to share a biotech stock that they think is well suited to a long-term portfolio -- even for nervous investors. Here's what they had to say about Amgen (NASDAQ:AMGN), Celgene (NASDAQ:CELG), and Gilead Sciences (NASDAQ:GILD).
1. Amgen: The company that started it all
Brian Feroldi (Amgen): Amgen is one of a handful of biotech companies out there that can be counted on to crank out cash flow year in and year out, regardless of what's happening in the global economy. This dependability makes it a great choice for investors who are looking for a lower-risk investment.
Amgen currently boasts a portfolio of more than a dozen drugs on the market that add up to create tens of billions in annual revenue. Included in this list are a handful of legacy drugs like Neulasta, Enbrel, and Epogen, but the company also has a number of newer drugs that are still in fast-growth mode.
One drug that I'm particularly excited about is Repatha. This next-generation cholesterol-busting med has gotten off to a slow start, but that could all change later this quarter when the company reports data from a long-term cardiovascular outcomes study. If Amgen can show that using Repatha lowers the risk of heart attack or stroke, demand will likely soar. When added to the billions in annual sales that Amgen rings up from its other drugs, investors should be able to depend on this company to put up consistent top-line growth in the years ahead.
While Amgen isn't likely to double anytime soon, this company's broad product portfolio has turned it into a cash cow that can be counted on to grow modestly and pay out a strong dividend. If you are looking for a "stress-free" investment from the biotech sector, Amgen is about as good as it gets.
2. Celgene: Multiple shots
Cory Renauer (Celgene): Global cancer medicine spending is expected to rise from about $107 billion in 2015 to more than $150 billion by 2020, and Celgene is well positioned to play a key role in this space for years to come. Multiple myeloma blockbuster Revlimid accounted for about 63% of the $2.98 billion Celgene reported in total third-quarter revenue. Its follow-up, Pomalyst, is quickly reducing the company's dependence on its main growth driver, as Pomalyst's third-quarter sales rose 33% over the prior-year period to $341.1 million.
Priced at about 44 times trailing earnings, Celgene's stock might appear to be trading at the sort of sky-high multiple that gives nervous investors heartburn, but on closer inspection, it's actually looking moderately priced. Wall Street is predicting Celgene's profits will expand at a blazing fast 22.6% annual growth rate over the next five years, which is just a couple points below the rate it achieved over the past five years.
A major source of fuel for Celgene's growth engine is its successful foray into the anti-inflammatory space with Otezla. The oral psoriasis treatment earned its first Food and Drug Administration approval in 2014, but third-quarter sales that nearly doubled over the previous year period already suggest a $1.1 billion annualized run rate. Approaching the finish line is ozanimod, a candidate for ulcerative colitis and multiple sclerosis, that is expected to reach peak annual sales of around $4 billion if it earns approvals for both indications.
Further ahead, the company has a myriad of collaborations, licensing agreements, and equity stakes in a list that reads like a "who's who" in biotechnology. With more shots on goal than you can count on your fingers and toes, an unexpected setback -- or even a few -- might sting, but not so much that you would have to stress out about holding on to shares of this blue-chip biotech.
3. Gilead Sciences: Top biotech chock-full of deep value
George Budwell (Gilead Sciences): Admittedly, Gilead has caused a fair amount of strife for its shareholders over the past year and a half. After all, the biotech's stock has shed a significant amount of value during this time, and its hepatitis C franchise can't seem to stop the bleeding after a record-setting launch. RBC analyst Michael Yee, for example, expects Gilead's hep C sales to drop by yet another $1 billion in 2017, compared to last year's already disappointing haul.
If we zoom out and take a more global view, though, it becomes apparent that what's ailing Gilead also happens to be the singular trait that makes this company such an intriguing long-term investing vehicle. Put simply, Gilead is a pacesetter in the pharma industry, not a trend chaser. Instead of pursuing copycat drugs or building a portfolio of hundreds of generic products, for instance, this top dog almost exclusively goes after big game, such as its breakthrough hepatitis C and HIV medicines.
The downside is that novel drugs with remarkable commercial features tend to attract the attention of other drugmakers, which is a major reason why Gilead's hep C franchise has run into deep trouble of late.
History clearly shows, however, that the biotech's well-articulated strategy of developing truly game-changing drugs does create tremendous value over long periods of time. And that's why investors should feel comfortable about owning Gilead Sciences, even during this particularly turbulent period.
Brian Feroldi owns shares of Celgene and Gilead Sciences. Cory Renauer owns shares of Gilead Sciences. George Budwell owns shares of iShares NASDAQ Biotechnology Index. The Motley Fool owns shares of and recommends Celgene and Gilead Sciences. The Motley Fool has a disclosure policy.