The biotech industry is composed of companies that develop drugs and other treatments for viruses, medical conditions, and diseases. The industry has seen its share of losses over the past couple of months but that provides us the perfect opportunity to pick up shares of stocks that could see substantial gains in the months ahead.
The biotech industry hit a high point in early February after seeing huge gains in 2020. The recent pullback results from a rotation into cyclical stocks, worries over drug-pricing reforms, and delayed drug approvals. I believe that these worries are overblown, and we can use them to our advantage. Any optimism over our economy’s gradual opening is already priced into cyclical stocks, and investors will now be looking for shares with lower valuations.
Plus, any worries over potential Congressional legislation on drug pricing are misplaced. The chances of anything getting passed are slim. And the three stocks I will focus on in this article won’t be affected by FDA delays on approvals. They are Amgen Inc. (AMGN), Gilead Sciences, Inc. (GILD), and Vertex Pharmaceuticals Incorporated (VRTX). These three biotech stocks are poised to see their shares rise in the months ahead.
Amgen Inc. (AMGN)
AMGN is a leader in biotechnology-based human therapeutics, with historical expertise in renal disease and cancer supportive care products. Its flagship drugs include red blood cell boosters Epogen and Aranesp, immune system boosters Neupogen and Neulasta, and Enbrel and Otezla for inflammatory diseases. Its five key marketed products are among the top-selling pharmaceutical products in the world.
The company has a strong pipeline boosted by future blockbuster cholesterol drug Repatha and migraine drug Aimovig. Its acquisition of Decode gave the company the ability to identify potential drug targets that are validated by human genetics. The firm should be able to continue building on this database. AMGN also has a strong biosimilars portfolio, which could be a crucial growth driver in the long run.
The company should also benefit from its expansion into international markets, which represent massive potential. The stock has an overall grade of B, which translates into a Buy rating in our POWR Ratings system. The company has a Value Grade of B, which isn’t surprising, with a forward P/E of only 14.90. AMGN also has a Quality Grade of A, which means it has a healthy balance sheet. As of the most recent quarter, the company had $10.6 billion in cash compared to only $91 million in short-term debt.
We also grade AMGN based on Growth, Momentum, Stability, and Sentiment. You can find those grades here. AMGN is ranked #10 in the Biotech industry. You can find other top-ranked stocks in that industry by clicking here.
Click here to checkout our Healthcare Sector Report for 2021
Gilead Sciences, Inc. (GILD)
GILD develops and markets therapies to treat life-threatening infectious diseases, with the core of its portfolio focused on HIV and hepatitis B and C. The company has been a pioneer in developing drugs for the treatment of HIV but also develops treatments for liver diseases, hematology and oncology diseases, and inflammation and respiratory diseases.
The company has been able to generate substantial profit margins with its HIV and hepatitis C portfolio. These drugs only require a small salesforce and inexpensive manufacturing, which aids margins. The company offers several single-tablet regimens for HIV, and its next-generation products, Genvoya and Biktarvy are growing the company’s market share. GILD has also been building a pipeline of treatments outside of HIV and hepatitis through acquisitions.
The company is shifting its focus towards oncology with its breast cancer and urothelial cancer drug Trodelvy due to its potential for indication expansion. GILD has an overall grade of A, which is a Strong Buy rating in our POWR Ratings system. It has a Growth Grade of B, which makes sense as analysts forecast 20.5% revenue growth and 20.8% earnings growth year over year in its upcoming quarterly earnings release.
GILD also has a Value Grade of A due to its forward P.E of 9.04. To access the rest of GILD’s grades (Momentum, Stability, Sentiment, and Quality), click here. GILD is ranked #4 in the same industry (Biotech) as AMGN.
Vertex Pharmaceuticals Incorporated (VRTX)
VRTX discovers and develops small-molecule drugs for the treatment of serious diseases. Its key drugs are Kalydeco, Orkambi, Symdeko, and Trikafta for cystic fibrosis, where Vertex therapies remain the standard of care globally. The company also focuses on developing treatments for pain, type 1 diabetes, inflammatory diseases, influenza, and other rare diseases.
The company’s cystic fibrosis drugs are poised to continue dominating the market for the foreseeable future due to the disease-modifying potential of the drugs, consistent use by patients, and very little competition. VRTX combination therapies also have lengthy patents, which protect its cystic fibrosis portfolio from generics. There is also potential for its non-cystic fibrosis pipeline, which has exposure to promising areas, such as AAT deficiency, sickle cell disease, and beta-thalassemia.
VRTX has an overall grade of B and a Buy rating in our POWR Ratings service. The company has a Value Grade of A due to its forward P/E of 18.90. VRTX also has a Sentiment Grade of B, which means it is well-liked by analysts. Twenty-three out of twenty-seven Wall Street analysts rate the stock a Buy or Strong Buy.
To see the rest of VRTX’s grades (Growth, Momentum, Stability, and Quality), click here. VRTX is ranked #14 in the Biotech industry.
AMGN shares were trading at $256.33 per share on Thursday morning, up $6.71 (+2.69%). Year-to-date, AMGN has gained 12.32%, versus a 11.07% rise in the benchmark S&P 500 index during the same period.
About the Author: David Cohne
David Cohne has 20 years of experience as an investment analyst and writer. He is the Chief Value Strategist for StockNews.com and the editor of POWR Value newsletter. Prior to StockNews, David spent eleven years as a consultant providing outsourced investment research and content to financial services companies, hedge funds, and online publications. David enjoys researching and writing about stocks and the markets. He takes a fundamental quantitative approach in evaluating stocks for readers. More…
More Resources for the Stocks in this Article
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