When it comes to investing in biotech stocks, there are a number of reasons to be optimistic.
First, while politics can drive headlines, these businesses continue do well regardless of whether the White House is occupied by a Democrat or Republican. Second, while business may waver during a recession, biotech companies see constant demand.
These are secular growers. For example, someone is not going to postpone going to the hospital when they have a heart attack. Why? Because they can’t. They have to go and thus, the hospitals will continue to use medicines, machines and medical equipment.
Put simply, the biotech space tends to see steady growth because for many patients, it’s critical to their lives. That’s why the group is constantly being analyzed by investors looking for opportunities.
Let’s look at seven cutting edge biotech stocks to consider owning for the future:
- Regeneron (NASDAQ:REGN)
- Bristol-Myers Squibb (NYSE:BMY)
- Amgen (NASDAQ:AMGN)
- Bluebird Bio (NASDAQ:BLUE)
- AbbVie (NYSE:ABBV)
- Vertex Pharmaceuticals (NASDAQ:VRTX)
- Mustang Bio (NASDAQ:MBIO)
Investors looking for biotech stocks seemingly have to stumble across Regeneron. This is a well-known name in the space, having grown to a market capitalization north of $60 billion.
Famously, this stock went from ~$5 in 2005 to more than $600 a decade later. Since that astronomical run though, shares have had trouble garnering more upside. But just because this name has had trouble putting together a sustainable rally, doesn’t mean long-term investors should ignore Regeneron.
For instance, consensus expectations call for earnings and revenue growth of 15.6% and 3.7% this year, respectively. However, fiscal 2020 is almost over and 2021 is forecast to be a big year for Regeneron.
Analysts expect both sales and profit to accelerate next year, growing 16.9% and 21.8%, respectively. Both figures are very respectable. At 20 times current earnings, REGN stock isn’t richly valued, either.
Throw in the company’s potential in helping with the novel coronavirus and Regeneron could have a big year in 2021. It was trusted by the President and helped him recover from the coronavirus. That’s a big endorsement for the company’s treatment.
Bristol-Myers Squibb (BMY)
I really like Bristol-Myers Squibb. This was a quality company with great brands and products. Then it acquired Celgene, an undervalued biotech juggernaut that had dependable, stable businesses.
Weighing in with a market cap north of $135 billion, Bristol-Myers is more than twice the size of Regeneron. The stock trades at just under 10 times this year’s earnings estimates, making it rather inexpensive as well.
Some investors don’t like cheap stocks — it means there is low demand for them. When they are profitable, growing and of high quality, it’s hard to dislike them too much. It helps that Bristol-Myers stock also pays out a 3% dividend yield.
2021 should be a good year for Bristol-Myers, too. It will have more experience with its Celgene acquisition while driving synergies. Analysts expect a solid 8.8% revenue growth and even better 18.2% earnings growth.
It will have its most recent acquisition, MyoKardia (NASDAQ:MYOK), to include as well. Purchased for $13.1 billion in cash, management expects the deal to close in the fourth quarter of 2020.
In short, Bristol-Myers is an inexpensive stock with a solid yield and a growing pipeline.
Like Bristol-Myers, Amgen also pays out a respectable dividend of 2.8%. Also like Bristol, Amgen has an excellent suite of products, treatments and medicines.
Amgen is the definition of steady. Analysts expect 6.4% earnings growth this year and 7% growth next year. On the revenue front, estimates call for 7% this year and 4.2% in 2021.
At about 14.5 times this year’s earnings, it’s in between Regeneron and Bristol-Myers when it comes to the valuation. With a solid balance sheet — total assets outweigh total liabilities, while current assets of $22.9 billion easily top current liabilities of $10.5 billion — investors can also sleep well at night without worrying about a liquidity situation.
Last year, the company scooped up Celgene’s Otezla for $13.4 billion.
While that’s a notable price tag, Celgene had to part ways with the drug in order for the BMY-CELG deal to get regulatory approval. It’s now Amgen’s fourth-highest revenue generator. In the most recent quarter, the company said:
“Otezla was acquired in November 2019 and generated $561 million of sales in the second quarter of 2020, reflecting 14% growth year-over-year driven primarily by volume.”
More importantly, the three products that had higher revenue all had negative year-over-year growth. Prolia saw sales decrease 6%, Enbril sales — its largest revenue generator — dropped 9% and Neulasta sales fell 28%.
Otezla was a good purchase for Amgen. Let’s look to see if this stock can outperform down the stretch after its recent pullback, and potentially put that balance sheet strength to work.
Bluebird Bio (BLUE)
Enough of some of the legacy biotech stocks, where are the big-time potential plays? Enter Bluebird Bio.
Because it’s not one of the more steady names on the list, the stock is far more volatile, too. The company went public at $17 a share in 2013, (but opened at $25.50). Two years later the stock was knocking on the door for $200 a share — but the volatility was just beginning.
Like a roller coaster, the stock went back down to the $35 to $40 range a year later in 2016, only to hit a high of $236.17 in 2018. If you are wondering whether Bluebird went back down, it sure did.
Now changing hands around $55, Bluebird has seen it all. The stock sports a $3.6 billion market cap and could be an M&A play down the road.
The good news is that the company has $1.55 billion in cash and essentially no debt. However, the bad news is that it’s not cash flow positive. Bluebird Bio is more of a high-risk play, but with it also carries high-reward potential. It may be a worthwhile speculative biotech stock to watch.
AbbVie is another one of the older biotech stocks to watch. The company has beat on earnings and revenue estimates for six straight quarters and boasts a dividend yield of 5.6%.
With the 10-year Treasury yield sitting at just 0.8%, AbbVie’s yield is exactly seven times larger.
While its balance sheet is more strained than some of its peers, it’s largely the result of its Allergan acquisition. The $63 billion deal might have carried a big price tag, but it was worth it.
Humira, Imbruvica, Botox and others continue to move the needle for AbbVie. Or lately speaking, continue to drive bottom-line results.
The company boasts a trailing 12 months of free cash flow in excess of $14 billion. As the world looks to move past Covid-19 and as more synergies are realized, this figure has room to climb even higher.
With estimates for 16.8% earnings growth and 17.4% revenue growth in 2021, AbbVie stock looks like a steal at 8 times this year’s earnings.
Vertex Pharmaceuticals (VRTX)
Vertex Pharmaceuticals is somewhat controversial for this list. On Oct. 15, the stock plunged 20% down into no man’s land on negative news.
The company announced it is discontinuing its Phase 2 study of VX-814 and dropping development of the drug. Unfortunately, that’s just a part of investing in biotech stocks. Not everything works out and not every trial progresses successfully through Phase 3.
Still fishing for an upside? Here’s one. The stock is now down about 30% from its all-time high and is declining right into its 100-week moving average.
Buying the dip or beginning to accumulate on the dip gives investors an advantage to develop a superior cost basis. And it’s not as if Vertex is without growth.
Analysts expect roughly 50% sales growth this year and earnings growth of 84%. Admittedly, that growth is forecast to slow notably next year, with revenue and earnings growth estimates of 13.7% and 16.6%, respectively.
Also on the plus side, Vertex is profitable and enjoys market dominance in treating the underlying causes of cystic fibrosis. This one may be a bit bumpy, but if it finds its stride, look out.
Mustang Bio (MBIO)
Let’s end the list of biotech stocks with another speculative holding in Mustang Bio. The company commands a tiny market cap, weighing in at just $175 million. This isn’t a stock to buy for a nice dividend yield or steady cash flow.
It’s a spec holding that could take a while to pay out, but if it works out, MBIO could be a huge winner. From the company:
Mustang Bio is a clinical-stage biopharmaceutical company, focuses on translating medical breakthroughs in cell and gene therapies into potential cures for hematologic cancers, solid tumors, and rare genetic diseases.
Focusing on CAR T therapies, the company has shown real promise. Impressively, there hasn’t been insider selling at Mustang. Instead, there’s been insider buying.
In May the CEO scooped up 180,000 shares between $2.79 and $3.13. A month later, he bought another 153,846 shares for $3.25 apiece. While that’s no guarantee that the company will be a success, that’s a promising purchase from the head of the company.
There are four analysts on record with this one, all of which have a buy rating. Their price targets range from $7 to $13 per share.
On the date of publication, Bret Kenwell held a long position in BMY via its acquisition of CELG.