Large Cap Biopharma Winners and Losers 2015-16: Which Stocks Can Beat the ETFs?… Part 2

Rayno Large Cap Biopharmaceuticals…Part 2…A Stock pickers Market


Time to Rebuild Your Portfolio: ABBV, BMY, GILD

Below we have summarized selective metrics for large cap biopharmaceutical companies. We began the process of revising and rebalancing our portfolio after the J.P.Morgan Healthcare Conference. Here are some parameters to watch that should help in stock picking:

  • Stock performance has been disappointing with all large cap stocks down year to date and over a 12 month period. Look for a technicals to show a bottoming process like the IBB at the $250 level.
  • We favor large caps over small caps now that valuations and growth potential are being questioned. Many favorite small caps are down by more than 50% over 6 months.Track XBI for small cap performance.
  • Valuations were clearly out of line with 2015 EPS and Revenue growth. Stocks are now undergoing a reset depending on 2016 growth potential. Momentum and perceived hyper-growth stocks have fallen the most from 52 week highs.
  • Stock selection will be important for 2016 outperformance. ETFs and mutual funds are likely to underperform until the bull market returns. The bear market began in September 2015.

Recently we added three stocks to buy now based upon valuation, growth potential and emerging therapeutic platforms; Abbvie (ABBV), bluebird bio, Inc. (BLUE) and Gilead Sciences (GILD). This is a new portfolio which replaces our original portfolio that had exceptional returns from 2/2/09 through 12/31/15. Six of our previous stock picks were acquired.Today we will add another new portfolio buy, Bristol-Myers Squibb Co.(BMY) at a price range of $59-62. Bristol Myers (BMY) is a leader in the emerging field of immuno-oncology with a potential blockbuster cancer therapeutic product in Opdivo (nivolumab) which blocks a key receptor on T cells thereby boosting a patient’s immune system. The Company has a large pipeline of small molecule and biologic products in oncology, virology and fibrotic/cardiovascular diseases being developed over four drug platforms. Revenue is expected to grow 6.3% in 2016 and 11.9% in 2017 led by Opdivo and Yervoy for multiple oncology treatments. EPS guidance for 2016 is in the $2.30-2.40 range. Dividend yield is 2.52%.

The past five years delivered exceptional sales growth in the biotechnology industry following the 2008 recession where healthcare was deemed a reliable growth play with less risk than other sectors as the economy slowly recovered. Innovative new products were launched such as targeted therapies for cancer and autoimmune diseases as well as break-though therapies for infectious diseases such as HIV and HCV. M&A catalyzed this trend with support from cheap money courtesy of the FED. All companies with the right mix of management, product pipeline and technology could get funding as the bull market raged on. As the bull market waned in September 2015 exacerbated by the global macro tumult and drug pricing, high-flying momentum stocks were crushed.

With biotech stocks down 24% YTD now is a good time to review the leading growth stocks in biopharma and slowly build positions.

Disclosure long ABBV,BLUE, GILD.

Company Ticker Price Market 2015 P/S PEG Q/Q Rev Q/Q EPS Stock Perf Price 1/18 % Week Price 2/15 %YTD
1/7/2016 Cap $B Rev$B Gr% Gr% %12 mos 2016 JPM 2016
2/15/2016
Abbvie ABBV 57.21 85.96 22.86 3.76 0.91 17.4 282.4 -9.49 57.32 0 52.56 -11.24
Alexion ALXN 174.37 31.79 2.6 12.21 8.85 16.9 -61.8 -22.59 158.68 -9 141.11 -26
Amgen AMGN 152.98 109.17 21.66 5.04 1.99 3.8 41.9 -5.71 151.35 -1 144.72 -10.85
Biogen BIIB 284.01 54.06 10.76 5.02 1.72 7.5 0.8 -36.88 273.33 -3.76 247.22 -19.3
Bristol Myers BMY 65.27 100.43 16.56 6.06 3.11 0.7 0 -0.27 62.78 -3.8 60.2 -12.49
Celgene CELG 111.89 80.08 9.26 8.65 2.32 22.9 -6.8 -11.59 103.06 -7.89 102.45 -14.45
Gilead Sci GILD 96.25 128.9 32.64 3.95 1.41 16.3 45.9 -12.23 91.84 -4.58 89.44 -11.61
Regeneron REGN 501.96 39.72 4.1 9.68 3.47 36.9 38.1 -5.81 462.95 -7.76 379.01 -30.81
IBB 304 6.1 -22.34 284.18 -5.93 251.19 -25.76
XBI 61.82 1.55 -30.6 47.05 -32.98
FBIOX -33.2 157.78 -33.12

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