With long-term rates falling, biotech stocks are starting to rally. This sector is very cheap with strong long term fundamentals. Amgen (AMGN), Biogen (BIIB), and Bio-Techne (TECH) are 3 top biotech stocks that investors should consider buying.
Biotech stocks have been crushed in 2022, along with other growth stocks. YTD, the sector is down 30%, which dwarfs the S&P 500’s 22.8% decline.
However, this underperformance is not new as biotech stocks have been underperforming for nearly a decade. Since its high in 2015, iShares Biotechnology ETF (ibb, is down 2.4%, while the S&P 500 is up 110% over the same time frame.
If we take a look at the earnings reports for the largest biotech stocks this consolidation period, we’ll find revenue and earnings growth in the triple digits, leading to a very attractive valuation. In fact, the weighted P/E for the IBB is 14.7, which is lower than the S&P 500’s P/E of 21.
Apart from this attractive valuation, fundamentals remain strong for the sector. Over the past few decades, health care spending has grown at a faster rate than inflation or economic growth. This trend is unlikely to end anytime soon, given the growing population and government subsidies through Medicaid and Medicare.
In addition, the biotech industry is constantly innovating and improving existing treatments. A major development over the past decade is that the cost of drug development has declined due to advances in software and genomics. There’s an insatiable appetite for companies promising treatments to pharmaceutical companies or keeping their pipelines stocked.
With geopolitical risk and economic uncertainty dominating the headlines, biotechs are also trickier, as they detract from these issues. But, the market turmoil has given rise to a lucrative “buy dip” opportunity, especially with recent signs of outperformance.
Here are 3 biotech stocks that investors should consider buying:
AMGN is a leader in biologics and over 80% of AMGN’s revenue comes from organic products. Its 3 best-selling drugs are Enbrel for inflammatory diseases, Prolia for osteoporosis and Neulasta to reduce the risk of infection in chemotherapy patients.
These 3 drugs accounted for nearly 50% of AMGN’s sales last year, with 74% of sales coming from North America. This is an opportunity as AMGN’s international sales continue to grow, and the company continues to enter new markets. It also has a proven record of making successful acquisitions to ensure growth and keep its pipeline well-stocked.
In 2021, AMGN had EPS of $17.1 and revenue of $26 billion. This year, analysts forecast a modest improvement in EPS to $17.65 and revenue to $26.2 billion. Of the 25 Wall Street analysts who cover the stock, none have a sell rating, while 10 have a buy or strong buy rating.
AMGN is also a standout in terms of power rating With an overall grade of B which is equivalent to a purchase. B-rated stocks posted an average annual performance of 20.1% that outperforms the S&P 500’s average 8% gain. In terms of its component grades, AMGN has an A for quality which is in line with its strong balance sheet, low debt and well respected management team.
BIIB Focuses on developing treatments and therapies 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, BIIB’s share price is underperforming following the controversial approval of the drug, Aduhelm, which has failed to generate much traction in the market as questions remain about its efficacy. As of now, insurers and CMS are not covering it. Last quarter, it only generated $1 million in sales. The drug was also rejected by Japanese and European officials.
Another challenge for BIIB is that its MS drug MSTECFIDERA is now facing moderate competition. Last year, it accounted for around 25% of revenue, but this year is expected to see sales decline between 30% and 50%.
Hence, the company is aggressively pursuing deals to strengthen its pipeline. Over the past 5 years, it has done more than 20 acquisition, licensing or development deals. Last year, BIIB reported $19.22 in EPS and $11.0 billion in revenue. This year, analysts forecast $15.45 in EPS and $9.8 billion in revenue. It looks like the stock price is already in this bearish fall as it’s down 55% from its all-time high since Aduhelm’s approval in June 2021.
POWR ratings are bullish on BIIB as it is rated B which translates to buy rating. It has strong component grades across the board, including A for value. Its forward P/E of 13 is much cheaper than that of the S&P 500. It also has a strong balance sheet with minimal debt and approximately $3 billion in cash.
There is also a quality grade of B in Biogen, which with its Eduhelm tremors is also one of the leading companies developing treatments for neurological diseases. It has consistent royalty revenue for several of its franchises, including Ocrevus, which saw a 29% increase last quarter.
Technique Supplier and manufacturer of high quality purified proteins and biological materials such as cytokines, growth factors, and antibodies that are used by pharmaceutical and biotech companies for their drug development and testing processes, especially for genetic and cellular-based therapies . In addition, it also provides tools and custom fabrication solutions.
Thus, TECH provides investors with exposure to the genomics industry which is expected to grow at a rate of 19.8% over the next decade. As a supplier to the industry, it has less risk than investing in companies that use genomics to develop drugs and bring them to market.
The company has strong earnings momentum, as evidenced by its most recent earnings report, with revenue up 17%. GAAP EPS increased from $1.15 to $1.94 per share. It also announced a $400 million share buyback and achieved a milestone of over $1 billion in revenue on a twelve-month basis. Operating margin also increased to 38.6%.
For the full year, analysts forecast $7.95 in EPS and $1.1 billion in revenue, which would be an improvement of 17% and 18%, respectively. With volumes increasing, margins are also expected to pick up. The company has a good mix of slow and steady growth from its older reagents business, coupled with strong growth from a small base in its genetic and cell therapy products.
As far as the POWR rating is concerned, TECH has been given a buy rating. It has a B grade for sentiment because the Wall Street analyst community is very bullish on the stock, with a buy rating near 5 out of 6, with the consensus price target of 30% upward. It also has a Grade B quality due to its strong balance sheet and returning cash to shareholders through dividends and buybacks while remaining on a growth trajectory.
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Shares of AMGN were trading at $242.18 per share, up $2.04 (+0.85%) on Thursday afternoon. Year-to-date, AMGN has gained 9.45% compared to a -20.24% gain in the benchmark S&P 500 index during the same period.
About the author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for almost a decade. Their goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist and Editor of StockNews.com power growth And $10. power stock under Newspaper. Learn more about Jaimini’s background, with links to her latest articles.