I am a fervent believer that investors are best served by investing towards a specific investment objective that suits their own unique goals, objectives and risk tolerance. In other words, investing is not always trying to get the highest possible total returns. If that were true, no one would have ever invested in bonds, CDs or other fixed income instruments.
Personally, my primary current investment objective is focused on achieving a reliable and growing dividend income stream. That doesn’t mean that I don’t expect capital appreciation to go along with my dividends, because I do. However, capital appreciation is secondary to what I need right now. Therefore, I am content to allow it to happen over the long run. This means being willing to accept the ups-and-downs of short-term market volatility that is sure to occur, as long as my dividend income keeps increasing.
On the other hand, I also have discretionary assets that I can invest in/or utilize outside of my core portfolio. So even though I favor dependable dividend paying stocks, I still am attracted to examining exciting growth investments with money I am both willing to and can afford to lose. However, even though I’m willing to lose with these discretionary assets, I don’t expect to. Instead, my objective is to generate significantly higher total returns than my prudent dividend growth portfolio is realistically capable of achieving.
More simply stated, I still appreciate powerful and exciting growth stocks because I understand they are capable of generating significantly higher returns. However, I am also cognizant of the fact that the risk associated with achieving those returns is also significantly higher. Consequently, I am just as adamantly (or even more so) focused on valuation when investing in growth stocks as I am with prudent blue-chip dividend paying stocks.
One of the most difficult things for the value-oriented investor to accept and embrace is the reality that the best value comes from stocks that are temporarily out-of-favor. In this regard, the value investor must also recognize that hitting the perfect bottom can only be accomplished with luck. Therefore, the intelligent value investor is willing to assume some short-term pain in order to achieve long-term gain.
The biotechnology sector contains many exciting growth stocks. But most importantly, as it relates to this article, the sector has recently been out-of-favor, which I believe has created bargain investment opportunities. Consequently, I offer the following 5 biotechnology stocks as attractive looking research candidates primarily for growth or long-term total return. However, 2 of these 5 biotech stocks offer attractive dividends in conjunction with above-average growth and attractive value.
3 Research-Worthy Biotechnology Growth Stock Candidates
These first 3 biotechnology research candidates are offered as pure growth stocks. None of them pay a dividend, and I don’t expect any of them to initiate one anytime soon. However, I believe all 3 appeared attractive relative to their long-term growth potential.
On each candidate, I present a short business description courtesy of S&P Capital IQ, followed by a series of F.A.S.T. Graphs™ and FUN Graphs highlighting some important fundamental metrics. Importantly, what I am presenting here is the recommendation that these stocks are worthy of further scrutiny if growth for high total return is your objective.
Biogen Inc (BIIB)
“Biogen Inc. discovers, develops, manufactures, and delivers therapies for the treatment of neurodegenerative diseases, hematologic conditions, and autoimmune disorders. It offers TECFIDERA, AVONEX, and PLEGRIDY to treat relapsing forms of multiple sclerosis (MS); TYSABRI to treat relapsing forms of MS and Crohn’s disease; and FAMPYRA to improve walking ability for patients with MS.
The company also provides ELOCTATE to treat adults and children with hemophilia A for control of bleeding episodes; ALPROLIX to treat adults and children with hemophilia B for control of bleeding episodes; RITUXAN for treating non-Hodgkin’s lymphoma, rheumatoid arthritis, and chronic lymphocytic leukemia (CLL), as well as two forms of ANCA-associated vasculitis; GAZYVA for the treatment of patients with previously untreated CLL; and FUMADERM to treat plaque psoriasis.
The company’s products in Phase III development stage comprise ZINBRYTA, a monoclonal antibody for the treatment of relapsing-remitting MS; Aducanumab for Alzheimer’s disease; and ISIS-SMNRx for spinal muscular atrophy. Its Phase II clinical trial products include Anti-LINGO for optic neuritis and MS; Amiselimod for multiple autoimmune indications; BAN2401 and E2609 for Alzheimer’s disease; Raxatrigine for trigeminal neuralgia; rAAV-XLRS for X-linked juvenile retinoschisis; and BG00011 for idiopathic pulmonary fibrosis. Its Phase I clinical trial products comprise Dapirolizumab pegol for systemic lupus erythematosus (SLE); ISIS – DMPK for myotonic dystrophy; Anti-BDCA2 for SLE; Anti-alpha-synuclein for Parkinson’s disease; and BIIB063 for sjogren’s syndrome.
The company has a strategic research collaboration with Ionis Pharmaceuticals, Inc. It offers products primarily through its own sales force, marketing groups, and third parties worldwide. The company was formerly known as Biogen Idec Inc. and changed its name to Biogen Inc. in March 2015.
Biogen Inc. was founded in 1978 and is headquartered in Cambridge, Massachusetts.”
Biogen has produced an impressive record of earnings growth since fiscal year 2008. However, it should be noted that growth expectations for 2016 and 2017 are below historical norms.
When monthly closing stock prices are brought into the equation we initially see a very high correlation between price and earnings over the long run. However, we also see a significant disconnect where price became significantly ahead of earnings justified valuation for most of 2013, 2014, and the first half of 2015. However, it appears that expectations for slower growth took the wind out of the price sails.
Nevertheless, in spite of the drastic correction in stock price, the long-term returns that Biogen generated for shareholders has significantly outperformed the average company.
Biogen has produced excellent gross and net profit margins over the last 10 years. Even though growth is expected to slow somewhat, I find it comforting that net profit margins are strong and improving.
I also like the fact that Biogen’s return on equity has been increasing at a rapid rate.
Consensus long-term earnings estimates and growth rates are currently forecast to be below historical norms. However, Biogen does have an exciting pipeline of potential future blockbuster drugs, but, there is high risk as to whether they will generate future profits or not.
Celgene Corporation (CELG)
“Celgene Corporation discovers, develops, and commercializes therapies to treat cancer and inflammatory diseases worldwide. It markets REVLIMID, an oral immunomodulatory drug for multiple myeloma, myelodysplastic syndromes (MDS), and mantle cell lymphoma; ABRAXANE, a solvent-free chemotherapy product to treat breast, non-small cell lung, pancreatic, and gastric cancers; POMALYST/IMNOVID to treat multiple myeloma; and OTEZLA, a small-molecule inhibitor of phosphodiesterase 4 for psoriatic arthritis, psoriasis, ankylosing spondylitis, Behçet’s disease, atopic dermatitis, and ulcerative colitis.
The company’s products also include VIDAZA, a pyrimidine nucleoside analog to treat intermediate-2 and high-risk MDS, and chronic myelomonocytic leukemia, as well as acute myeloid leukemia (AML); THALOMID for the patients with multiple myeloma and erythema nodosum leprosum; ISTODAX to treat cutaneous and peripheral T-cell lymphoma; and FOCALIN, FOCALIN XR, and RITALIN products. Its clinical stage products include OTEZLA for the treatment of various immune-inflammatory diseases; sotatercept for the treatment of renal anemia, beta-thalassemia and MDS; luspatercept for beta-thalassemia and MDS; CC-486 to treat MDS, AML, and solid tumors; CC-122 and CC-220 to treat hematological and solid