The biotech sector has been one of the best performing ones during the impressive rally of 2013. They enter 2014 with strong momentum as well especially some of the bigger players as several of these concerns have announced positive news recently.
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Here are two of these that still look attractive heading into the New Year.
Jazz Pharmaceuticals (JAZZ) is a specialty biopharmaceutical company (~$7B market capitalization), focuses on the identification, development, and commercialization of pharmaceutical products to meet unmet medical needs. I have been bullish on the shares since August 2012 when the shares were trading at $47 a share. I have taken some profits as the stock has more than doubled since then but still have a small core position.
Recent Positive Catalysts:
- The market likes its just announced $1B acquisition of Gentium (GENT), a rare disease drug developer.
- Brean Capital has a "Buy" on the stock and just lifted its price target to $171 a share from $119 a share previously after the Gentium acquisition was announced.
- The shares remain a "top pick" at FBR Capital. FBR's analyst recently put a $200 a share price target on the shares, more than 75% above the current stock price.
- Finally, Cantor Fitzgerald raised its price target to $145 a share from $106 a share earlier in December.
The company should post revenue growth of ~50% this year. Analysts project it will have at least 20% growth in FY2014 and those projections were before the acquisition of Gentium. Earnings should post better than a 30% increase this year and another 20% gain in FY2014 is in the cards. Stock is still undervalued at just over 15x forward given this growth.
Gilead Sciences (GILD) is a large capitalization (over $100B market cap) biopharma concern with leading HIV and Hepatitis drug franchises. The stock is up more than 80% since I first bought and profiled it in 2011 and it remains one of my core biotech holdings.
Recent Positive Catalysts:
- Its possible blockbuster Hepatitis C drug, sofosbuvir, is getting impressive initial results which is causing myriad upgrades from analysts. The FDA just approved this compound earlier in the month.
- RBC Capital just lifted its price target on Gilead from $90 a share from $80 previously.
- Credit Suisse took the exact same action late in November.
- The FDA also just approved its HIV-1 regimen "Complera" as a replacement for other regimens in "certain virologically-suppressed adult patients. The European Commission has also approved an expanded indication for the regimen.
Revenue looks set to accelerate from the low teens this year to over 30% in FY2014. Earnings are also projected to rise more than 60% in the coming year as well. The shares are not cheap at just under 23x forward earnings but valuation is compensated by growth prospects and the five year projected PEG of the stock is right at 1 (1.02). I also expect additional analyst upgrades in the next few weeks on recent key drug approvals.