Take a look at IBB, the ETF that corresponds to the performance of the Nasdaq Biotechnology index:
As you can see, the Biotechnology Index broke out to the upside this past week. The top 10 components in this index are Pharmasset (VRUS), Amgen (AMGN), Alexion (ALXN), Celgene (CELG), Gilead (GILD), Biogen (BIIB), Teva (TEVA), Regeneron (REGN), Perrigo (PRGO) and Vertex (VRTX).
Many of the above stocks are also breaking out at the current time. Here is a current charts of Amgen:
Here is a chart of my favorite stock in the group right now -- Celgene:
We will get to the reason why I favor Celgene in a moment. First, I want to examine the reason why I think many of the biotech stocks are coming alive right now. Not only are the biotech stocks very strong right now, but so are many of the managed care stocks like Amerigroup (AGP), Humana (HUM), and Centene (CNC).
Investors in the market like to be as early to a new trend as possible. The market is very much forward looking, and I believe that the market is looking ahead to a very possible repeal of Obamacare.
Not only does Obamacare face a severe threat from the Supreme Court, but all of the GOP candidates have also promised to do everything possible to repeal the health care bill as if they were to get into office.
I am also seeing good, early movement in the technology stocks right now. I believe that there is a perception out there in the marketplace that the current administration is not real business-friendly. Whether right or wrong, that is the perception, Just look at the trillions of dollar that companies are sitting on, waiting for a more business-friendly environment.
It appears to me that as the poll numbers of Mitt Romney, the former CEO of Bain Capital, go up, so do the more risk-oriented stocks from sectors like biotech , healthcare, and technology.
I watched last year as the big, dividend paying stocks led the market. The Dow Jones Industrial Average far outpaced the more risk-oriented NASDAQ. I believe that this year, the more risk-oriented stocks are poised to outperform their larger, safer brethren.
Many of the big dividend payers have been exploited such that they are currently trading at relatively high PE ratios. Many small and mid-cap stocks were left behind last year and currently present better value.
I look for the NASDAQ and the Russell 2000 to outperform the Dow by a wide margin this year. We are also seeing improving numbers on the economy that should also favor small and mid-cap stocks.
Celgene is currently a $32 billion dollar company. This is a far cry from a high dividend payer like Pfizer (PFE) at $169 billion in market cap. Pfizer had a great year last year, but consider that Pfizer has only been growing its earnings by a paltry average of 1% per year over the last five years.
By contrast, Celgene has been growing its earnings at a sizzling rate of 47% per year over the last five years. Again, I believe that 2012 will be a year that favors growth stocks like Celgene over dividend payers like Pfizer.
Celgene develops therapies to treat cancer and immune-inflammatory related diseases by regulating cells, genes, and proteins. The company has almost $5 billion in annual sales and has been very profitable since 2004. I will have more on the company's valuation in a bit.
Now lets take a look at the performance of Celgene over the last 1, 3, 5, and 10 years:
Data from Best Stocks Now App
As you can see, the stock has far outperformed the S&P 500 over the last 1,3,5, and 10 years. Notice too, that it was even up 19.6% in 2008, when the market was down 38.5%!
Let's now look at the current valuation of the shares. As you can see, Celgene has a very good PEG ratio. The company is expected to continue growing their earnings by just over 24% per year over the next five years, yet the stock is currently trading at just under 16 times forward earnings. This creates a PEG ratio of just under 0.70. This is a very favorable valuation on a very good stock.
I think that 2012 will favor some of the higher growth sectors like tech, biotech, healthcare, etc. The Biotech Sector is breaking out right now. Celgene has always been one of the better performers in the group and in my opinion is attractively valued at the current time. Aggressive to Moderate growth investors should consider Celgene as potential candidate for their portfolios as we begin the 2012 investing year.