I'm always on the hunt for great companies selling at a fair value -- let's face it, when the market crashes, often great companies get hammered along with the bad ones. So the next time the market crashes, here are three stocks on my watchlist.
1. Celgene Corporation (NASDAQ:CELG) is one of biotechnology's biggest and most successful drug developers. The company markets four FDA-approved therapies, including Revlimid, a top-selling treatment for multiple myeloma that brings in more than $5 billion in revenue per year. In addition to Revlimid, Celgene also markets the cancer drug Abraxane, which had sales of $212 million in the third quarter of 2014, and Pomalyst, a third-line treatment for multiple myeloma that saw its sales soar by 102% year over year to $181 million in the third quarter. Celgene also markets Otezla, an autoimmune drug that received FDA approval in September as a treatment for psoriasis; it's a major market and Celgene is forecasting that Otezla will someday be a billion dollar a year therapy.
In addition to a solid drug lineup of already approved treatments, Celgene also offers investors a rich pipeline of potential therapies. The company has more than 100 phase 2 studies planned or under way, and over 30 phase 3 studies ongoing. Additionally, Celgene has partnered with some of the most cutting-edge small-cap biotech companies, including Agios Therapeutics, on a slate of possible next-generation cancer treatments. The pipeline could offer plenty of shareholder-friendly news flow in the coming years, but even if some of these drugs stumble, investors can at least rest easy knowing that Celgene's balance sheet is among the best in its industry. The company's cash and short-term investments, for example, have jumped from $5.7 billion exiting 2013 to $6.8 billion coming out of the third quarter. That gives the company a current ratio, which measures a company's ability to handle its short term obligations, of 6.3, which is better than most of its big cap biotech peers.
2. Amgen's (NASDAQ:AMGN) current ratio of 4.2 may not be as good as Celgene's, but it's still among the best in the industry, and that fact, along with Amgen's distinction of being one of the few biotech stocks that pays investors a dividend, may mean that it deserves a spot in investors' portfolios, too.
At 1.5%, Amgen's dividend yield isn't as high as that of many of the big pharmaceuticals companies, but it's still healthy and growing. In December, Amgen announced it's boosting its dividend payout by 30% in the first quarter to $0.79 per share. That dividend increase and the company's plans to return 60% of its adjusted net income to investors through 2018 may mean that Amgen is an arguably better buy than those big pharma peers, which have seen their sales drop due to patent expiration.
Admittedly, Amgen isn't immune to patent risk. Its best-selling Neulasta/Neupogen saw sales fall by 7% year over year in the third quarter of 2014 after Neupogen's patent expired in 2013. But Amgen's drugs are biologics, and since biologics are more difficult to replicate than typical small molecule drugs sold by big pharmaceuticals companies, the patent risk has proven to be muted (so far). Further offsetting the risk of biosimilar competition are Amgen's top-selling rheumatoid arthritis drug Enbrel, which racks up $1 billion in quarterly sales and has patent protection until at least 2019, and two fast-growing cancer drugs, Xgeva and Prolia, which saw sales climb 22% and 43% to $318 million and $255 million in the third quarter, respectively. Sales could get additional support this year from Blincyto, an immunotherapy that was approved in December to treat a specific population of Acute Lymphoblastic Leukemia patients, and from evolocumab, a next generation bad-cholesterol busting drug that analysts think could have multi-billion blockbuster potential, too.
As a result, Amgen issued guidance in October calling for sales of between $20.8 billion and $21.3 billion and EPS of between $9.05 and $9.40 in 2015, which would be an increase from analysts' full-year 2014 expectations for sales and EPS of $19.97 billion and $8.61, respectively. However, that could prove to be the tip of the iceberg in terms of earnings given that Amgen expects to deliver double digit EPS growth through 2018. That forecast may suggest that investors are right to consider buying shares in the company if they fall.
3. Gilead Sciences (NASDAQ:GILD) has already dropped sharply in the past month, falling from a peak of $115 to about $97 on worries that AbbVie's hepatitis C cocktail will cut more deeply into its market share than previously expected.
However, despite the potential for AbbVie to win away sales from Gilead Sciences' Sovaldi and Harvoni in 2015, it's still likely that Gilead Sciences will still be the market leader and generate billions of sales from those two drugs in that indication this year. Additionally, Gilead Sciences' HIV drugs produce about $10 billion in sales annually, and its cardiovascular drugs Letairis and Ranexa have combined sales north of $1 billion a year too. Further out, Gilead Sciences continues to advance its next generation hepatitis C therapies through trials, and is expanding its footprint into cancer treatment with the launch of Zydelig earlier this year.
The recent drop in Gilead Sciences shares have arguably made the company one of the least expensive drugmakers in terms of price to earnings, and despite the increased threat from AbbVie, analysts are still predicting that Gilead's EPS will reach $9.88 in 2015, up from expectations for $7.95 in 2014, and up from estimates of $9.52 90 days ago. That suggests that long term investors may want to use any additional weakness as an opportunity to pick up shares.
Thinking long term
It's been proven time and time again that investing for the long term outperforms short-term thinking. That suggests that investors may be better served by buying top-shelf companies on sale when the market inevitably falters. If so, then picking up Celgene, Amgen, and Gilead Sciences for the long haul may prove to be profit-friendly moves down the line.