The biotechnology industry is typically characterized by companies with huge potential, but little to no revenue. This situation often leads to some gut-wrenching volatility that keeps even the most cavalier investors constantly logging into their brokerage accounts.
But biotech investing doesn't need to be an exercise in anxiety management. Three of my favorite stocks in the space -- Gilead Sciences, Inc. (NASDAQ:GILD), Celgene Corporation (NASDAQ:CELG), and Amgen, Inc. (NASDAQ:AMGN) -- are far safer than your average biotech. Let's take a closer look at each to see if any deserve a spot in your long-term portfolio.
1. Gilead Sciences: Ticking all the boxes
Some of the best ways to avoid shareholder anxiety include paying a knock-down price for highly profitable companies that boast strong balance sheets. When looking for stocks that will be easy to hold for the long haul, it helps to pick ones that return their profits to shareholders in the form of dividends and share buybacks. Gilead Sciences has all these bases covered.
At an ultra-low price of just seven times last year's earnings, Gilead stock is a hard bargain to pass up. Falling sales from its leading hepatitis C drugs, following an enormous spike in recent years, explains the beaten-down price. Although the company predicts a 40% reduction in its hepatitis C revenue this year over last, it's important to remember its treatments are far and away the most popular option for an estimated 130 million people still infected with the virus.
While hepatitis C can generally be cured in a matter of weeks, HIV remains a lifelong fight, a reality that has led to years of steady growth that investors can reasonably expect to continue for many years to come. Gilead Sciences has been a leader in this space for years, and the biotech's safer, next-generation HIV antivirals are cementing its position.
Years of enormous cash flows from HIV and hepatitis drug sales have helped Gilead build a fortress-like balance sheet that includes $32.4 billion in cash. Its cash pile is all the more impressive in light of the fact it returned $11.0 billion to shareholders in the form of share repurchases, plus $2.5 billion as dividend payments last year.
2. Celgene Corporation: Expanding in more ways than one
This rapidly growing biotech isn't paying a dividend yet, but multiple paths to rapid growth and a relatively low price at the moment make it a nervous investor's dream come true. The company's older products and more recently launched drugs are setting a mind-boggling pace. Last year, sales of Celgene's flagship multiple myeloma therapy, Revlimid, grew 20% over 2015 to $6.97 billion, and sales of its follow-on drug, Pomalyst, rose 33% to $1.31 billion.
Although it's nice to see Celgene's biggest franchise expanding fast, weary investors will appreciate its successful foray into the anti-inflammatory space with Otezla. Despite earning its first FDA approval less than two years ago, 2016 sales of the oral psoriasis drug came in at $1.02 billion.
Celgene also appears poised to charge into another arena with an experimental, oral multiple sclerosis therapy called ozanimod. In February, the company announced success in a late-stage clinical trial designed to support a new drug application. We know it outperformed a standard treatment, but we'll have to wait until Celgene shares more details at a scientific conference later this year. Given the success of other oral therapies in this space, Ozanimod could generate more than $5 billion in annual sales at its peak.
Recently, Celgene shares are trading at just 16.6 times this year's earnings estimates, which is a bit below the average forward P/E ratio for the benchmark S&P 500 as a whole. When you consider that the average analyst following Celgene expects its bottom line to climb at an astounding 22.3% annual growth rate over the next five years, this looks like one of the best deals in biotech.
3. Amgen, Inc.: Long live the King of Returns
Anyone who plunked down $10,000 on Amgen stock 30 years ago and simply held on is now sitting on about $2.5 million, and that figure doesn't include dividend payments. While it's hard to imagine another three decades of growth at this pace, this founding father of biotechnology still looks like an easy stock to tuck away into a long-term portfolio.
A 2.6% dividend yield should pique income investors' interest. You'll also be glad to know Amgen increased its quarterly payment each year since initiating the distribution in 2011, and a payout ratio of about 39% suggests further increases won't be an issue. It also returned $3.0 billion to investors in the form of share buybacks in 2016 and intends to return a similar amount this year.
While the company is generating strong cash flows, the next year or two could be somewhat nerve-wracking, as older drugs face biosimilar competition. Luckily, the company could offset the losses by launch several biosimilars that reference some of the world's best-selling drugs. The company also announced recent success in a 27,500-patient long-term outcome trial showing that its next-generation cholesterol-lowering drug, Repatha, significantly reduces the risk of heart attack and stroke. Armed with these results, Repatha could generate about $5 billion in annual sales at its peak.
Although the stock might jump around more than usual over the next couple of years, a $38.1 billion cash pile on Amgen's balance sheet at the end of 2016, plus generous dividends and buybacks, ought to make it a stock you don't need to constantly fret over.