A Good Value In The Biotech Sector?

| About: Jazz Pharmaceuticals, (JAZZ)

Last night my wife and I went to a restaurant in downtown San Diego with a live Jazz band. The band didn't start playing until 9 pm. The markets open at 6:30 am on the west coast. I do a live one-hour radio show that begins each day at 7 am PST.

I was not too jazzed about sticking around to hear the trio. I was ready to go home and get rested up for the next trading day. I wasn't too excited about the Jazz music. But there's a different kind of JAZZ I've been a lot more excited about lately-JAZZ Pharmaceuticals (NASDAQ:JAZZ) which is headquartered in Ireland.

JAZZ develops specialty drugs in the therapeutic areas of narcolepsy, oncology, pain, psychiatry and others. Jazz Pharmaceuticals derives 60% of its revenues from narcolepsy drug Xyrem. It is used for the treatment of excessive daytime sleepiness? Boy, where do I get my script?

Worries about a competing generic version of the drug have helped to keep valuations at JAZZ very low. While I am always a bit skeptical about companies that rely heavily on one product or customer, I get pretty jazzed about a company that just reported sales that were up 92% year over year.

In addition to this huge sales growth, earnings were up 54% year over year. It seems that there is a lot of daytime sleepiness going around. I am guilty as charged-but what about the stock? How sleepy is it?

Data from Best Stocks Now App

JAZZ is a $4 billion dollar aggressive growth stock that is currently trading at just 9.1X forward earnings. This stock currently benefits from several factors:

1. It is a mid-cap stock (which is a hot area of the market right now). In fact, of the 25 different asset classes that I rank on a daily basis, Mid-Cap Value is my #1 ranked asset class. This asset class has been at or near the top of the leader board for almost one year.

Data from Best Stocks Now App

2. JAZZ is a biotech stock. The biotech sector has been one of the leading sectors in the market for well over a year. It is still ranked number four overall as of today.

Data from Best Stocks Now App

Let's next look at long-term, intermediate-term, and short-term performance of the stock.

Data from Best Stocks Now App

Over the last five years, JAZZ has been averaging 55 percent per year, while the market has only been averaging 3.6 percent per year.

Over the last three years, JAZZ has been going up at rate of 104 percent per year, doubling every year! The market has only been going up 14.1 percent during this same time frame. Over the last 12 months, JAZZ has is up 62 percent!

Keep in mind however, that JAZZ was down a gut-wrenching 87 percent during the bear market of 2008. You have to understand that this is a high risk stock.

This is not a conservative growth stock. This is not a stock for income or dividend. It fits into my aggressive growth profile. In my portfolio, I'm always well diversified across a spectrum of stocks and industry groups but tend to focus heavily on leading sectors in the market. I currently own about 25 stocks in my aggressive growth portfolio.

This stock passes my performance test; in fact it gets an "A" grade!

Now let's talk about the valuation of JAZZ. Many times, and here's the problem I have with pure momentum investing, other investors buy stocks purely because it is has a powerful stock chart. They don't look at anything else as they believe the chart tells all. I do not believe this to be the case; I like to take advantage of all of the information that's known on a stock-including value.

Data from Best Stocks Now App

So let's take a look at the valuation of JAZZ which has very good performance and a very powerful stock chart right now. JAZZ is currently trading at 9 times forward earnings --single digits, that's right! It is expected to grow by 16 percent per year over the next five years. And it has a PEG ratio of 0.5, so it's trading at a steep discount to its growth rate!

When I extrapolate JAZZ's earnings estimates out over the next five years and apply a multiple that I think is appropriate, I come up with a five year target price of $130 per share. JAZZ also passes my valuation test.

My last test is a visual test of a one year stock chart. I don't like to buy stocks in sideways, down, or extended uptrends. Jazz recently broke out of an 8 month consolidation and is hopefully beginning a new uptrend.

JAZZ Pharmaceuticals passes the performance test, valuation test, and lastly, that all important visual test of the one-year chart. It's on the Best Stocks Now!

In fact out of the 3,386 stocks that I rank on a daily basis, JAZZ comes in at #25 overall. Aggressive Growth Clients at Gunderson Capital Mgt. are currently long the stock.

Data from Best Stocks Now App

Disclosure: I am long JAZZ. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.