Even though the Nasdaq Biotechnology is range-bound (IBB), the heavy large cap companies are rising slowly. Gilead Sciences (NASDAQ: GILD), Celgene (NASDAQ: CELG), and Regeneron (NASDAQ: REGN) are solid companies whose nearly six-month underperformance appears overdone.
These three biotech companies have tremendous upside potential. Valuations are especially low for CELG and GILD stock, due to the low P/E of 24x and 8.5x, respectively. Given the future prospects are better than the market thinks, the forward P/Es are in the single digits at 12x for Celgene and 11x for Gilead.
But Celgene’s management giving a very conservative guidance for 2020. It forecasts revenue of $19 - $20 billion and earnings of $12.50 a share. That still implies CAGR earnings growth of ~20%.
Gilead is building future growth in a way it knows best: acquisitions. Its Kite unit is buying Cell Design Labs for $567 million. The payment schedule is $175 million upfront and $322 after the company meets milestones.
The bearishness in Regeneron appears overdone. EPS will grow by ~ 40 percent this year. EPS in the next five years will grow over 15%, albeit down from the 38.8% growth in the previous five years. Poor clinical results for Eylea stung shareholders.
Takeaway: keep these three biotech stocks on the watch list.
