It’s been said that one of the best ways for an investor to make money — real money — is to be selling when others are buying and buying when others are selling. The shellacking the stock market has taken during the past several days gives those looking to cash in on the downturns the opportunity to put this theory into practice. Just how many have the stomach to buck the prevailing headwinds remains to be seen.
In the biotechnology sector, one maverick who has emerged is the CEO of San Diego-based Celgene (NASDAQ:CELG), Bob Hugin. He evidently saw a bargain recently and jumped into the market to buy 10,000 shares of his company’s stock at $52.70, according to a regulatory filing.
Should investors follow Hugin’s lead and load up on Celgene shares of their own? There are many good reasons for optimism about the company’s prospects, but it’s also a good idea to proceed with caution in today’s market climate.
For one, the fact insiders are buying their company’s shares isn’t necessarily a sign the market is close to reaching a bottom. Market weakness almost always sparks executives to snap up their own shares. What’s more, overall insider buying is still well below levels of other serious corrections of the past — a sign that it’s wise to proceed with caution.
Another red flag is the performance of the Nasdaq Biotechnology Index for the past 30 days. It’s been hit much harder than both the total Nasdaq Index and the S&P 500, dipping nearly 23%. The big difference is that Celgene is nearly a polar opposite of many of its small-cap brethren, which are high-risk, unprofitable and burn lots of cash — a devastating combination of qualities in a bear market.
The company has not escaped investors’ wrath during the past 30 days. Its shares have declined more than 15% to just north of $53 a share. On the bright side, the company announced that earnings during the second quarter of 2011 were up 80% from the first three months of the year. During the next four years, earnings should double.
Reflecting the company’s optimism about its prospects for the current year, Celgene raised its guidance for 2011 to $3.45 to $3.55 per share (on an adjusted basis) on revenues of $4.60 billion to $4.70 billion. Based on the earnings forecast, Celgene is trading at a relatively reasonable P/E of under 15.
The company’s focus is on the discovery and development of products for the cure and treatment of cancer, and inflammation disorders. Over the years, it has developed expertise in solid tumor cancers, prostate and ovarian cancers, and non-Hodgkin’s lymphoma.
Celgene’s best-selling product is the cancer treatment Revlimid. Sales of the drug during the second quarter were $795 million, up 35% from a year earlier. The company also has some promising drugs in its rich pipeline, including pomalidomide, a treatment for psoriasis and for arthritis and an early-phase drug to treat Crohn’s Disease.
Given its performance and prospects, Celgene could be just the ticket for the investor who’s not fearful of jumping aboard when others are abandoning ship.
