Biotech stocks are starting to rise as long-term rates decline. The sector is very cheap with solid long-term foundations. Amgen (AMGN), Biogen (BIIB) and Bio-Techne (TECH) are the top 3 biotech stocks that investors should consider buying.
Biotechnology stocks have crushed in 2022 along with other growth stocks. YTD, the sector is down 30%, overshadowing the 22.8% drop in the S&P 500.
However, this lower yield is nothing new, as biotech stocks have had a lower yield for nearly a decade. Since its peak in 2015, the iShares Biotechnology ETF (IBB) it has fallen 2.4%, while the S&P 500 has risen 110% over the same time period.
If we take a look at the earnings reports of the largest biotech stocks during this consolidation period, we will find a three-digit revenue and earnings growth, which will lead to very attractive valuations. In fact, the IBB’s weighted P / E is 14.7, which is lower than the S&P 500’s P / E of 21.
In addition to this attractive valuation, the underlying fundamentals remain solid for the sector. Over the past two decades, health spending has grown at a faster rate than inflation or economic growth. This trend is unlikely to end soon given the aging population and government subsidies through Medicaid and Medicare.
In addition, the biotechnology industry is constantly innovating new treatments and improving existing ones. A major breakthrough over the past decade is that the cost of drug development has come down due to software and advances in genomics. Pharmaceutical companies also have an insatiable appetite for promising treatments or companies to keep their pipes supplied.
With geopolitical risk and economic uncertainty dominating the headlines, biotechnologies are also intriguing, because they are disconnected from these problems. But the market turmoil has led to an attractive opportunity to “buy the downturn,” especially with recent signs of higher performance.
Here are 3 biotech stocks that investors should consider buying:
AMGN is a pioneer in organic and more than 80% of AMGN’s revenue comes from organic products. Its 3 best-selling drugs are Enbrel for inflammatory diseases, Prolia for osteoporosis, and Neulasta, which reduces the risk of infection in patients on chemotherapy.
These 3 drugs accounted for nearly 50% of AMGN’s sales last year, with 74% of sales coming from North America. It is an opportunity, as AMGN’s international sales have been growing steadily and the company has been entering new markets. It also has a proven track record of successful acquisitions to ensure growth and keep its pipeline well stocked.
In 2021, AMGN had an EPS of $ 17.1 and revenue of $ 26 billion. This year, analysts forecast a modest improvement to $ 17.65 in EPS and $ 26.2 billion in revenue. Of the 25 Wall Street analysts covering the shares, none have a sell rating, while 10 have a buy or a strong buy.
AMGN also stands out in terms of POWR ratings with an overall grade of B equivalent to one purchase. Shares with a B rating have an average annual return of 20.1%, which exceeds the average gain of 8% of the S&P 500. In terms of the ratings of its components, AMGN has a Quality A that is consistent with the his solid balance sheet, his low debt and his well-regarded management team.
BIIB is focused on developing therapies and treatments for neurological and neurodegenerative diseases such as multiple sclerosis, Alzheimer’s, dementia, Parkinson’s disease and spinal muscular atrophy. These include TECFIDERA, VUMERITY, AVONEX, PLEGRIDY, TYSABRI and FAMPYRA for multiple sclerosis (MS), SPINRAZA for spinal muscular atrophy and FUMADERM for treating plaque psoriasis.
Currently, the price of BIIB shares has underperformed after the controversial approval of the drug, Aduhelm, which has failed to generate much traction in the market as there are still doubts about its effectiveness. So far, insurers and the CMS do not cover it. Last quarter, it only generated $ 1 million in sales. The drug was also rejected by the Japanese and European authorities.
Another challenge for BIIB is that its drug for MS, MSTECFIDERA, now faces generic competition. Last year, it accounted for about 25% of revenue, but this year sales are expected to fall by between 30% and 50%.
Therefore, the company has been making aggressive deals to bolster its pipeline. Over the last 5 years, it has made more than 20 acquisitions, licenses or development agreements. Last year, BIIB recorded $ 19.22 in EPS and $ 11.0 billion in revenue. This year, analysts predict a decline to $ 15.45 in EPS and $ 9.8 billion in revenue. The stock price seems to have already had a price in this slowdown, as it has dropped 55% from its all-time high in June 2021 after Aduhelm’s approval.
POWR ratings are bullish on BIIB as it has a B rating, which translates to a buy rating. It has strong component ratings across the board, including an A for value. Its 13-year P / E is significantly cheaper than the S&P 500. It also has a solid balance sheet with minimal debt and nearly $ 3 billion in cash.
Biogen also has a Grade B for being one of the leading companies in developing treatments for neurological diseases even with its Aduhelm setback. It also has steady royalty revenue for many of its franchises, including Ocrevus, which saw a 29% increase in the last quarter.
TEC is a supplier and manufacturer of biological materials such as high quality purified proteins and reagents such as cytokines, growth factors and antibodies that are used by pharmaceutical and biotechnology companies for their drug development and testing processes, specifically for genetic and cell therapies. lulars. In addition to this, it also offers custom manufacturing tools and solutions.
Thus, TECH offers investors exposure to the genomics industry which is expected to grow at a rate of 19.8% over the next decade. As an industry provider, you have less risk than investing in companies that use genomics to develop drugs and bring them to market.
The company has a strong profit boost, as evidenced by its recent earnings report, which showed a 17% increase in revenue. GAAP EPS rose from $ 1.15 to $ 1.94 per share. It also announced a $ 400 million repurchase of shares and reached a milestone with revenues in excess of $ 1 billion in the next twelve months. Operating margins also increased to 38.6%.
For the full year, analysts forecast $ 7.95 in EPS and $ 1.1 billion in revenue, which would represent improvements of 17% and 18%, respectively. Margins are also expected to have a higher trend with increasing volume. The company has a good combination of slow and steady growth of its older reagent business with strong growth, albeit from a small base, in its gene and cell therapy products.
In terms of POWR ratings, TECH has the Purchase rating. It has a B rating for Sentiment, as the Wall Street analyst community is very optimistic about the shares, with 5 out of 6 with a buy rating with a consensus price target that implies a 30% rise . It also has a B grade quality due to a solid balance sheet and cash returns to shareholders through dividends and repurchases while remaining on a growth trajectory.
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AMGN shares traded at $ 242.18 per share on Thursday afternoon, an increase of $ 2.04 (+ 0.85%). At present, AMGN has gained 9.45%, compared to an increase of -20.24% in the S&P 500 benchmark index during the same period.
About the author: Jaimini Desai
Jaimini Desai has been a writer and financial reporter for almost a decade. Its goal is to help readers identify risks and opportunities in the markets. He is the chief growth strategist at StockNews.com and the publisher of the POWR Growth and POWR Stocks Under $ 10 newsletters. Learn more about Jaimini’s background, along with links to his latest articles.
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