Between Oct. 5 and Nov. 11, one of the bellwether biotech exchange-traded funds fell 10.5%.
That’s a correction, as defined by most market watchers.
And most investors – and their “enablers” on Wall Street – have shied away from biotech shares since. They’re jittery.
In fact, I saw one august financial publication -the highly respected Investor’s Business Daily – warn folks away from biotech in 2018 due to “median tenure of chief executives at large-cap biotech companies.”
That’s not just a stretch. It’s a load of malarkey.
Here’s the thing: If you want to double your money in 2018, you absolutely must invest in biotech.
That temporary dip in the iShares Nasdaq Biotechnology Index Fund ETF (Nasdaq: IBB) came after congressional Republicans ditched efforts to repeal and replace Obamacare. If there’s one Wall Street hates, it’s uncertainty.
As you might expect, Wall Street’s panic led it to ignore some shares that have very bright futures – and are now trading at huge discounts.
So I’ve crunched the numbers – and done the research — and have identified three beaten-down biotech leaders that are poised to make huge comebacks throughout 2018.
I think you should put all three of these 2018 Biotech Comeback Stocks on your “Buy” list.
Especially the one that I believe will soar 110.5% in just 12 months…
Three Catalysts Behind Biotech
Let’s get one thing cleared up right away. There’s just no doubt that we as a nation will depend on biotech breakthroughs for years to come.
After all, the U.S. sector is worth $162.6 billion and is brimming with new drugs that will combat a wide range of diseases, often at the genetic level.
Here are three catalysts that I believe will drive biotech share prices in 2018 – and beyond…
- Aging America: There are 65 million U.S. baby boomers. As they age, they’ll need all types of healthcare, including prescription drugs for heart disease, diabetes, strokes, high blood pressure, vision problems, Alzheimer’s, cancer, and much more.
- Buyout Bonanza: The first four days of 2018 brought with it an $11 billion biotech buyout binge, with three major healthcare acquisitions making headlines. Last year, healthcare M&A totaled a disappointing $200 billion. Baker McKenzie expects that number to rise as much as 50% this year.
- Better Politics: As we go deeper into the Trump administration, the shroud over drug-price policy should lift. In fact, we can expect to see little or zero draconian anti-healthcare business policies coming out of the White House – and a faster-moving U.S. Food and Drug Administration approval process.
With the long-term outlook so bright now is a great time to take advantage of the sector’s recent correction. And to help you make the most money, I have compiled a list of three oversold biotech stocks set to soar in 2018.
Each of these 2018 Biotech Comeback Stocks is trading at big discount from the S&P 500 based on their forward earnings multiples. Right now, if you bought a broad market ETF, you would be getting a basket of stocks that trade at 19.5 times next year’s earnings.
But the three I’ve uncovered have forward multiples ranging from just 9 to 12 times 2018 estimated profits. That’s why they are poised to soar 60.4%… 69.1%… and 110.5%.
2018 Biotech Comeback Stock No. 1: Shire
This may very well be the least understood Big Pharma firm out there right now. The market has priced Shire PLC (Nasdaq: SHPG) as though the Ireland-based giant may lose its entire hemophilia franchise next year.
Yes, analysts expect to see the FDA approve Roche’s ACE 910 hemophilia treatment as soon as February.
No doubt, much is at stake here. Shire’s FEIBA hemophilia drug is a big part of its hematology unit that provided about 20% the firm’s $11.4 billion revenue in 2016. But FEIBA has wide appeal among doctors and is highly unlikely to just dry up completely – and certainly not by the end of 2018.
Add into the mix the fact that Shire bought Baxalta Inc. for $32 billion about two years ago, and you have a firm with a robust drug pipeline. Shire currently has 33 drugs in clinical trials, of which half are in final Phase III trials.
That’s a bright future for a stock that is off 12.3% in the past year. With a price of around $148, Shire trades at roughly nine times forward earnings, or less just 53% of the S&P.
If it just traded at the market’s forward multiple, the stock would hit roughly $311.61 based on 2018 estimated earnings of $15.98 a share. That would give you a profit of 110.5%.
2018 Biotech Comeback No. 2: Gilead
Gilead Sciences Inc. (Nasdaq: GILD) has long been one of the best biotech firms around. And now, its depressed share price makes it a true bargain.
This is a company with a proven knack for developing – or acquiring – the sort of drugs that go on to become among the top sellers of all time. We’re talking an antiviral drug pipeline that is worth $30 billion a year in sales.
Gilead has produced treatments for HIV, influenza, hepatitis B, and hepatitis C that have saved countless lives.
Yes, sales of its hepatitis compounds have slowed, partly because they have a cure rate of 90%. But this is still a huge franchise. Sovaldi and its follow-on drug, Harvoni, had combined 2016 sales of $19.1 billion, making them among the world’s best-selling drugs.
Earlier this year, Gilead paid $11.9 billion to buy Kite Pharma and its sprawling cancer therapy pipeline. The pact targets a huge market: The United States alone accounts for $100 billion in cancer drug spending.
Yet, Gilead trades at just 10.7 times next year’s earnings, or a 45% discount from the S&P 500. If it just reached the S&P’s forward multiple, the stock would hit $133.60, for a 69.1% gain.
2018 Biotech Comeback Stock No. 3: Celgene
October is a month that scares many investors. The big crash of 1929 happened that month, as did the crash of 1987.
So we often see negative stories that month that suggest a replay is at hand. Fortunately, that has not proved the case in the past 30 years.
But one biotech favorite was not so lucky in October 2017. Shares of Celgene Corp. (Nasdaq: CELG) fell more than 16% on Oct. 26.
On that date, Celgene took the “novel” step of lowering sales guidance not just for 2017 but through 2020 as well. Wall Street reacted with a series of downgrades.
Yes, Celgene faces some challenges, notably in sales of a key dermatology drug, Otezla, its third-biggest seller. In October, it also said it was stopping trials of a new drug to combat Crohn’s disease – and that sent shares down 10.7%.
So the picture for Celgene is dire, right? Not so fast…
I see three reasons for plenty of upside ahead…
- Celgene’s popular treatment for multiple myeloma remains a go-to drug for cancer doctors. And the company has gotten FDA approval to extend use to other forms of cancer, which will boost sales.
- The company is working with more than a dozen industry peers to find the next wave of blockbuster drugs. Celgene says that pipeline stands to generate up to $14 billion in peak sales.
- Celgene has patents protecting its biggest sellers well into the 2020s, giving it strong barriers to entry that will protect sales and profits
But it trades at just 12 times forward earnings, for a 38.5% discount from the S&P. If it just met the market’s earnings multiples, the stock would gain 60.4% to $170.05.
In other words, when it comes to biotech in 2018, don’t believe Wall Street’s anti-hype.
If you want to make around 20% a year, sure, add IBB to your portfolio.
But if you want to make the sort of triple-digit profits we’ve talked about today, pick up these three 2018 Biotech Comeback Stocks instead.
Of course, there’s more going on here than just a one-year rebound. Each of these companies is poised to show lots of long-term growth – and that will generate big share-price gains for years to come.
I hope you’re able to apply those profits to making your biggest dreams come true.
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