While most investors tend to think of biotech stocks as pure lotto tickets, the reality is the sector is much more nuanced than that. Sure, there are bootstrapped, clinical-stage biotech stocks with only one potential drug in their arsenal. These are the ones that live or die by the FDA and clinical trials.
But there are also biotech stocks from companies with billions in revenues, multiple blockbuster drugs, and dividend-paying ability.
In the end, there’s enough variety in the sector to appease almost every kind of investor — from retirees to younger, growth-oriented investors. And with healthcare spending set to rise over the long term, there’s plenty of reasons why you’d want to align yourself toward biotech stocks.
But which ones are best for you and your situation?
Here are five potential big biotech stocks to buy in 2018.
Big Biotech Stocks To Buy In 2018 #1: Celgene Corporation (CELG)
It’s not often that a biotech superstar becomes a big-time bargain. But that’s just what happened to Celgene Corporation (NASDAQ:CELG). In October, Celgene reported two pieces of bad news — stoppage of clinical trials on a new drug and lower sales guidance for the far-out future. These events cause shares of CELG to tank hard over the fall.
But that drop is just the entrance investors have been waiting for.
Despite the missteps, Celgane is still firing on all cylinders. Its blockbuster drug Revlimid brings in billions of dollars, while newcomer to its arsenal Otezla has also been quite the moneymaker. These plus a host of new cancer therapies will continue to drive CELG stock for a long time. As will its lucrative partnerships with smaller biotech developers.
And yet, the market has all but abandoned CELG stock.
Today, shares of the stock are now trading for a P/E of 24. That’s pretty cheap by biotech standards. It’s even cheaper, when you consider that the drug maker is expected to see EPS growth in the double digits this year and next. gAdd in the firm’s huge free cash flows and war-chest/mega-balance sheet, and the bargain really begins to take shape.
Big Biotech Stocks To Buy In 2018 #2: Amgen, Inc. (AMGN)
As one of biotech’s elder statesmen, Amgen, Inc. (NASDAQ: AMGN) mints cash. Early biotech drugs, like Enbrel and Neulasta, have produced billions for the firm. In 2016, the pair of drugs and the rest of its arsenal managed to make Amgen a cool $9.6 billion in free cash flows.
And Amgen could be seeing even more cash generation soon.
Thanks to the Republican tax plan, AMGN shareholders are uniquely poised to benefit. For starters, the vast bulk of Amgen’s revenues come from the U.S. With the corporate tax rate dropping like a stone, Amgen will be able to enjoy those profits at lower and lower rates. Secondly, Amgen has one of the largest cash hoards — currently $41 billion — overseas. The tax plan gave corporations what is essentially a holiday on bringing that cash home.
Add all of this together, and AMGN stockholders should be enjoying larger dividends in the near future. Amgen already recently hiked its payout by 15%. But that could be a drop in the bucket if it decides to bring much of that treasure hoard back to U.S. shores. AMGN currently yields 2.85%.
For investors, Amgen is one heck of a dividend growth stock in the making.
Big Biotech Stocks To Buy In 2018 #3: Ligand Pharmaceuticals Inc. (LGND)
For biotech stocks, it’s all about the pipeline. And for midcap and relatively unknown biotech Ligand Pharmaceuticals Inc. (NASDAQ:LGND), the pipeline is robust for sure.
Currently, LGND has five late-stage programs, 22 mid-stage programs, and 25 early-stage programs in its pipeline. That’s a staggering amount of pipeline potential. And that doesn’t include its 3 drugs already in marketing stages.
More than 95 different biotech and pharmaceutical firms have partnered with Ligand to develop new drugs and therapies. These “shots on goal,” as LGND’s management likes to call them, should produce a staggering 24 commercial products by 2020. And Ligand will be collecting some pretty handsome royalties from its marketing partners.
With that potential, it’s easy to look past LGND’s high 35x earnings valuation. But given the growth, cash flow — LGND is currently positive — and earning’s potential at Ligand, that valuation is really darn cheap.
With this biotech stock, you really are getting a glimpse at the next Amgen or Celgene before it happens.
Big Biotech Stocks To Buy In 2018 #4: MannKind Corporation (MKND)
Looking for the archetype “lotto” ticket biotech stock? Then MannKind Corporation (NASDAQ:MKND) is it.
MannKind has just one product — Afrezza. The drug is an inhalable insulin used to treat diabetes. It could be a miracle cure for those suffering from the disease. Things haven’t turned out well for MKND over the years, however.
Prescriptions for the drug continue to come in well under expectations, and revenues from these written prescriptions have been paltry at best. That’s a problem when you are running low on cash and have some pretty decent debts on your balance sheet.
But there have been some positives lately — like a label ruling update from the FDA and the potential for Afrezza to be covered by insurance for some patients. The hope is that these positives, as well as higher scripts, will happen before MannKind runs out of cash. If and when that does, MKND should pop much higher.
At $2.50 per share, MKND stock is really a lotto ticket. But it may be worth it for investors looking for to add some risk to their portfolios.
Big Biotech Stocks To Buy In 2018 #5: Incyte Corporation (INCY)
Oncology and cancer remain a top draw for many larger biotech companies looking for buyout candidates. After all, cracking the cancer code and curing it faster is a major money maker. This makes a biotech like Incyte Corporation (NASDAQ:INCY) it a major league buyout target.
Incyte has one commercial drug in its arsenal — Jakafi. The drug treats a rare type of bone-marrow cancer called myelofibrosis. It’s a big deal drug that comes with a big deal price tag. That alone has put a target on Incyte’s back. But the biotech company has also parleyed the research behind it into a variety of other cancer therapies in various stages of trials and research. That oncology portfolio is a prize.
INCY stock continues to trade at buyout premium.
But even if that buyout doesn’t happen, Jakafi revenues continue to rise and Incyte should be able to turn its oncology portfolio into several other money makers.
That makes INCY a potential great growth play for portfolios — buyout or not.
As of this writing, Aaron Levitt is long CELG, AMGN, and LGND.