Biotech stocks have many unique advantages and some interesting challenges as well. They trade with perhaps the highest volatility in the market and move heavily on optimism of single drug. Your bet on a biotech stock may either be very right or very wrong makes the biotechnology sector an exciting, yet complex and risky investment arena. Let's discuss five biotech stocks on my radar which can earn you big profits. The list include a HIV treatment drug manufacturer, a pulmonology and fibrotic expert, an oncology and hematology drug specialist and two human therapeutics specialists.
Gilead Sciences, Inc. (NASDAQ:GILD) - GILD a biopharmaceutical company, engages in the discovery, development, and commercialization of therapeutics for the treatment of life threatening diseases worldwide and its current portfolio is dominated by HIV treatment drugs. Its revenue is expected to grow by 10% next year and has healthy 15% earnings per share growth. The stock is currently trading at a price earnings ratio of 12.85 versus the industry average of 15 times. GILD is beating its competitors both in the gross and operating margins. Trading at around 52 week high with price to earnings growth ratio of 0.66, operating margins of 47.98% and return on equity of 45.47% indicates that the stock is poised to rise further in 2012. With its pipeline of blockbuster drugs, Quad Pill in 2012 and Truvada as the first ever precautionary drug against HIV and Revenue diversification through acquisition of Pharmasset, it can easily touch 65$ once the markets starts to revise earnings estimates upwards. I think this stock has lot of potential to grow your money in future especially when it is currently undervalued.
Amgen Inc. (NASDAQ:AMGN) - AMGN discovers, develops, manufactures, and delivers innovative human therapeutics. It has a strong set of products and its recent strategy of returning capital to shareholders is plus to invest in it. Recent dividend of $0.36 cents/quarter is a strong step towards the same. The $5 billion share buyback again demonstrate the stock is undervalued and AMGN expects to purchase $5 billion more. The company plans to return more than 60% of net income to shareholders in 2012. Though trading near its 52 week high, the company continues to execute its EPS growth in 2012 and beyond. With cash on hand to make acquisitions with, and a shareholder friendly strategy, make a strong bet in 2012. Compared to its competitors, Johnson & Johnson (NYSE:JNJ) and Sanofi (NYSE:SNY), AMGN is well placed with a 5-year PE-to-growth ratio of 1.42 times which is 31% and 23% lower than JNJ and SNY respectively.
InterMune, Inc. (NASDAQ:ITMN) - ITMN is a biopharmaceutical company that engages in the research, development, and commercialization of therapies in pulmonology and fibrotic diseases. The market seems to have butchered this stock and it has lost more than third of its value and is trading at 4.5 times its book value. Uneven sales pattern and losses during the past years are the main reasons behind it. In comparison with its peers, it do not look attractive, Dendreon Corp. (NASDAQ:DNDN) is trading at a lower price-to-book multiple of 3.8 times and Seattle Genetics Inc. (NASDAQ:SGEN), which I highlighted as a candidate for research, is 7.5 times. In this interesting article the author is bullish on ITMN but there are downside risks involved and will be better to wait for more clarity.
Spectrum Pharmaceuticals, Inc. (NASDAQ:SPPI) - SPPI a commercial-stage biotechnology company, primarily focuses on oncology and hematology. Everything was going great for SPPI and it looks invincible but then it spiked a 10% cut in its price last month after the FDA notes an unidentified company has applied to sell generic copies of Fusilev. It could be a case for long position unwinding and looking at its strong portfolio of Fusilev and Zevalin and pipeline of two additional drugs that are in the last stages of clinical trials; Belinostat and Apaziguone. Each of the four drugs has a significant amount of upside potential. SPPI again is heading towards 52 week high after the drop last month. Although it has posted large gains in past three months but the gains are not concurrent with the progress and future of Spectrum and more upside is expected. When compared to competitors Questcor Pharm. (QCOR) and Cubist Pharm (CBST) who are trading at price to earnings ratio of 52.6 and 66.3 respectively and SPPI is merely trading at price to earnings of 18.5. Also galloping revenue and profitability, current price-to-sales and price-to-book ratios of 3.9 times and 4.0 times for the company makes it dirt cheap and extremely attractive.
ViroPharma Inc. (VPHM) - VPHM engages in the development and commercialization of therapeutic products that address serious diseases in the United States and internationally. VPHM with 5 year revenue CAGR of 27%, a price to earnings growth ratio of 1.59, operating margins of 44.28% and return on equity of 14.74% paints a very stable outlook and performance. VPHM says it expects 2012 sales to be above Street estimates which spiked 6% gain in market price. The company has a strong balance sheet as evidenced by cash and short term investments of $460.4 million and $151.5 million in long term debt. The stock price has appreciated more than 50% over the past twelve months and price of $35 is achievable in 2012. VPHM's management appears to be confident in the company's prospects as seen by their stock ownership. But VPHM is anticipated to show marginal earnings growth during the next five years as per consensus expectations, in the backdrop of competition from generic drug makers.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.