Biotech Remains on Fast Track

 | Feb 18, 2014 | 11:00 AM EST  | Comments
  • Comment
  • Print Print
  • Print
Stock quotes in this article:

gild

,

jazz

,

regn

"If you're coasting, you're either losing momentum or else you're headed downhill." -- Joan Welsh

Biotech stocks have been on a huge run over past couple of years and have been one of the top performing sectors throughout the rally. It is a sector that has provided my portfolio with some huge winners over that time frame and an area that I wish in hindsight that I would have been more overweight.

Jim Cramer provided a comprehensive series of pieces on solid momentum stocks that still exist in the market during the holiday weekend. His pick in the biotech sector was Regeneron Pharmaceuticals (REGN), a company experiencing better than 25% annual revenue increases.

I want to look at a couple of biotechs Jim mentioned in the article. Both have had huge runs but still look reasonable given the growth the companies are delivering.

Jazz Pharmaceuticals (JAZZ) is a specialty biopharmaceutical company that focuses on the identification, development and commercialization of pharmaceutical products to meet unmet medical needs. I first called out this biotech name in September 2012 when it was trading at under $50 a share. The stock now goes for $160 a share.

Unfortunately for my portfolio I broke one of the cardinal sins of momentum investing -- Ride your Winners. I took profits a bit too soon on this biotech juggernaut. Jazz should post over 30% year-over-year gains when it reports the last quarter of its fiscal year next week. The consensus is calling for better than 20% gains in FY2014. 50% revenue increases this fiscal year should be followed by 20% to 25% growth in FY2014.

The company has made two acquisitions recently to diversify its product portfolio. Jazz has also been the subject of takeover rumors due to its fast growth, under $10 billion market capitalization and its tax domicile in Ireland. Even with the stock's huge run, JAZZ is still reasonable at below 20x forward earnings given its growth trajectory.

If I do have a biotech position I consider my 'core' biotech stock in my portfolio it would be Gilead Sciences (GILD). Gilead's stock has roughly doubled over the past year but it is hard to find faults with the company's product portfolio. Its HIV franchise continues to drive consistent growth while it has increasing opportunities with new products for Hepatitis C.

Standard & Poor's believes Gilead's new Hepatitis C treatments will reach $2.4 billion in revenues in 2014 on the march to eventual peak sales of $8 billion  annually. The consensus is calling for 70% to 80% growth in earnings this year on the back of almost 50% revenue growth. Earnings are projected to increase another 30% to 35% in FY2015. An investor is paying less than 15x FY2015's projected earnings for a company experiencing explosive growth.

Although biotech has produced stellar returns for investors over the past few years, momentum looks set to continue given the revenue and earnings trajectory of some of the big names in the space.

Columnist Conversations

AAPL needs to clear this hurdle IF this last low is any good!! View Chart » ...
The Fed didn't raise interest rates, but the market did via lower bond and note prices. The recent run in Trea...
WHR has regained all the of the ground lost over the last nine sessions during today's rip higher. The st...
Just to let you know, the three dissents come from governors who will not be voting members in 2015. Fisher i...

BEST IDEAS

REAL MONEY'S BEST IDEAS

Columnist Tweets

BROKERAGE PARTNERS

Except as otherwise indicated, quotes are delayed. Quotes delayed at least 20 minutes for all exchanges. Market Data provided by Interactive Data. Company fundamental data provided by Morningstar. Earnings and ratings provided by Zacks. Mutual fund data provided by Valueline. ETF data provided by Lipper. Powered and implemented by Interactive Data Managed Solutions.


TheStreet Ratings updates stock ratings daily. However, if no rating change occurs, the data on this page does not update. The data does update after 90 days if no rating change occurs within that time period.

IDC calculates the Market Cap for the basic symbol to include common shares only. Year-to-date mutual fund returns are calculated on a monthly basis by Value Line and posted mid-month.