The main market indices remain in consolidation, with the more speculative averages like the Russell 2000 and NASDAQ Biotechnology Index now experiencing a bit of a price retrenchment. However, biotech stocks are still the place to be if you’re looking for a lot of growth.
Among risk-capital sectors of the equity market, biotech stocks have been tremendous wealth creators the last several years, with a record number of U.S. Food and Drug Administration (FDA) approvals and clinical trials.
From a portfolio perspective, your weighting toward biotechnology should be conservative. And, in the large-cap space, there are a few candidates worthy of consideration.
The fact of the matter is that despite the higher investment risk, much more so than the broader equity market, the financial rewards from a successful pharmaceutical can be tremendous.
Naturally, with so much institutional money floating around biotechnology stocks, trading action among these stocks is typically robust—on both sides of the income statement.
Celgene Corporation (NASDAQ/CELG)
Celgene Corporation (NASDAQ/CELG) is a large-cap biotechnology company with multiple treatments for different forms of cancer.
In its recent quarter, revenues grew 20% comparatively to $2.08 billion. The company’s operating income improved significantly on a reduction in research and development spending.
Celgene’s bottom line improved to $719 million, up from $280 million in the first quarter last year.
The company reaffirmed its 2015 full-year guidance, and the position is definitely one to watch. Like many well-known biotech stocks, this position’s been flat for the last several months. It could actually use a material price retrenchment after such strong capital gains over the last 12 months.
The thing about biotech stocks is that their trading action is all about the equity market’s “expectations.” These positions live or die on whether or not their results beat the Street.
Amgen Inc. (NASDAQ/AMGN)
Another proven wealth creator among large-cap biotech stocks is well-known Amgen Inc. (NASDAQ/AMGN). (See “KMI, CNI, and Amgen: 3 Income Stocks to Watch in a Slow-Growth Market.”)
Despite its $123-billion market capitalization, Amgen is a growth business. The stock, commensurate with the broader equity market, has been trading sideways since last November.
The company’s 2015 first-quarter revenues improved 11% comparatively to $5.03 billion with growth in sales among five principle drugs as the reason for the gain.
Amgen’s adjusted earnings per share grew a substantial 33% over the first quarter of 2014. GAAP net income and GAAP net income per diluted share rose 51% year over year.
In a slow-growth environment, this kind of business performance is exceptional.
Amgen tweaked its 2015 full-year sales and earnings guidance slightly higher from its previous forecast.
Among the plethora of biotechnology stocks from which to choose, Amgen is worth putting on your radar if you have an equity market portfolio looking for some biotechnology/healthcare exposure.
While a risk-capital speculator may look at smaller-cap biotech stocks as offering more potential for capital gains, I believe speculators should pay attention to proven large-cap wealth creators.
These companies have the resources and staying power to produce pharmaceuticals (and growth) consistently over the long term.
There are many sectors of the equity market that would benefit from a material price correction. Biotechnology is one of them. These companies continue to produce well-above-average business growth compared to the rest of the market.