How can you know when Wall Street really loves a stock? One key sign is how many of the analysts covering the stock maintain buy ratings. Another tell-tale indicator is the price targets these analysts give for the stock. The higher the target is above the current share price, the more highly the analysts view the stock.
Analysts like plenty of biotech stocks, but which ones does Wall Street really love? Here are three that definitely appear to qualify.
1. Alexion Pharmaceuticals (NASDAQ:ALXN)
According to Thomson/First Call, nine analysts rate Alexion as a "strong buy," with another seven giving the stock a "buy" rating. The other seven analysts covering the stock recommend holding shares, but that's the lowest rating anyone has for Alexion among the analysts surveyed. The median price target for the biotech is $219 -- slightly more than 20% above Alexion's current share price.
Alexion has gained Wall Street's enamor primarily because of the success of Soliris, its only currently approved drug. Soliris, which treats rare blood disorders paroxysmal nocturnal hemoglobinuria and atypical hemolytic uremic syndrome, generated $2.234 billion in revenue last year. That's a whopping 44% jump over 2013 sales.
Soliris probably won't be the lone drug in Alexion's commercial product line-up for much longer. The company has filed for regulatory approval of asfotase alfa as a treatment for hypophosphatasia in the U.S., Europe, and Japan. While the drug likely won't prove to be as big of a hit as Soliris, it could add upwards of $1 billion in annual sales over time. One reason analysts still pine for Alexion is that Soliris' revenue should keep growing as the biotech continues to reach more PNH and aHUS patients across the world. Registration clinical trials are also in process for three new indications: delayed graft function, refractory myasthenia gravis, and relapsing neuromyelitis optica.
2. Celgene Corporation (NASDAQ:CELG)
Most of the analysts surveyed by Thomson/First Call think quite highly of Celgene -- 11 rate the stock as a strong buy with another 12 rating the biotech as a buy. Only three analysts maintain a hold rating for the stock, with one lone wolf giving Celgene an "underperform" rating. The median price target for the stock of $140.50 represents a 19% increase from the current share price.
Celgene captured Wall Street's affections primarily with the blood cancer drug Revlimid. The drug racked up sales of $4.98 billion in 2014 and continues to show solid double-digit annual growth. The biotech recently received more good news with the European approval of Revlimid as a treatment for adult patients with previously untreated multiple myeloma who are not eligible for transplant.
Investors have more to love about Celgene than just Revlimid, though. Cancer drugs Abraxane and Pomalyst could be headed for blockbuster status in the not-too-distant future. And while Vidaza and Thalomid are seeing sales declines, the two drugs still combined for over $800 million in revenue last year.
The bonus for Celgene is the company's pipeline. Clinical trials are underway for new indications for Revlimid, Abraxane, Istodax, Otezla, and other drugs. The biotech also sits on more than $7.5 billion in cash and cash equivalents that could be used to scoop up even more promising drug candidates.
3. Gilead Sciences (NASDAQ:GILD)
Nine analysts give Gilead a strong buy rating, according to Thomson/First Call. Another 13 analysts rate the stock as a buy. As with Celgene, three analysts give Gilead a hold rating, while one outlier pegs the stock with an underperform rating. Wall Street has solid expectations for the stock, with a median price target of $120 -- 18% above Gilead's current share price.
Gilead initially enchanted Wall Street with its HIV/AIDS franchise, but the company's forays into the hepatitis C market have stirred up more passions lately. Its hepatitis C drugs Sovaldi and Harvoni combined for more than $12.4 billion in revenue last year. What makes this even more impressive is that 2014 was the first full year for Sovaldi to be on the market, while Harvoni only gained FDA approval last October.
Analysts have fretted somewhat over the impact of a hepatitis C drug pricing war. However, Gilead appears to have fared relatively well against its primary hep-C rival, AbbVie, with multiple wins from payers picking Sovaldi and Harvoni for their formularies.
Gilead's cash stockpile of $10.13 billion is yet another thing to love about the company and its stock. The biotech has proven that it can make smart investments (with the purchase of Pharmasset in 2011, which originally developed Sovaldi, serving as a glowing example).
Second that emotion
Wall Street loves all three of these biotech stocks. Investors shouldn't buy stocks automatically just because analysts have strong feelings about them, though. Do your own research to form your opinion.
In the case of these biotech stocks, however, I think Wall Street's affection is well placed. While investing in any stock, particularly biotechs, carries risk, Alexion, Celgene, and Gilead all appear to have great prospects.
If I were forced to pick just one, though, I'd go with Gilead. The buzz has been all about hepatitis C, but the biotech's HIV juggernaut continues to experience solid growth also. Gilead's valuation is quite compelling, with a forward price-to-earnings multiple below 10. On top of all of that, the company just initiated a dividend. To paraphrase Led Zeppelin, that's reason for a whole lotta love.
Keith Speights loves Celgene and Gilead Sciences so much that he owns shares in both. The Motley Fool recommends Celgene and Gilead Sciences. The Motley Fool owns shares of Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.