Seeking Alpha

Bret Jensen's  Instablog

Bret Jensen
  • on Healthcare
Send Message
Editor for The Biotech Forum, the #2 subscribed to Marketplace investment service offered through SeekingAlpha. Top 5% ranked analyst (TipRanks) since 2013. Daily contributor for Real Money Pro. Hedge fund manager from 2008 to 2011. Previously technology executive at Fortune 100 firm for a... More
My company:
Investors Alley
My blog:
Biotech Forum
View Bret Jensen's Instablogs on:
  • Three Reasons Biotech Will Outperform In 2016

    My regular readers know that I am not sanguine on the equity markets heading into 2016 for myriad reasons, the biggest of which is I believe the market is underestimating the continuing impacts of the collapse of the energy and commodity complexes.

    I am in the slow process of raising my cash position to 30% of my portfolio by the time the New Year rolls around. I am completely out of the energy and commodity sectors other than a position in refiner Valero (NYSE:VLO).

    The only sector of the market I am significantly overweight right now is biotech. That may surprise some given my overall market outlook as biotech is traditionally a high beta sector. However, there are three core reasons I believe biotech with outperform the overall market in 2016.

    Bear Market In Rearview Mirror:

    The biotech sector has frequent sell- offs and has five official bear markets since 2009. These tend to hit every 12 to 18 months on a regular basis. These declines tend to last 2-3 months, are quite sharp and hit the small cap part of the sector much harder than the large cap growth stocks in the space like Gilead Sciences (NASDAQ:GILD). After bottoming the sector then usually outperforms the overall market until the next big pullback.

    (click to enlarge)

    This type of pattern happened in early March of 2014 and recently again late this summer. Since bottoming in late September the biotech complex has posted better than 10% returns. If historical patterns hold, investors should count on several quarters of outperformance until the sector hits another predictable hiccup. Long term growth investors should keep in mind how well biotech has performed over the past decade as they endure these bouts of volatility.

    M&A Activity Will Remain Strong:

    2015 will go down as a record year for M&A and few sectors have seen more action than the Biotech & Pharma space. This activity culminated recently when Allergan (NYSE:AGN) and Pfizer (NYSE:PFE) announced they were combining in the biggest merger of the year.

    There are numerous factors driving these combinations. The desire to achieve a lower tax rate is one as the United States has the highest corporate tax rate in the developed world, even if it produces 70% of the world's patents for new drugs. Pfizer estimates it will save some $2 billion annually from purchasing Allergan and moving its corporate domicile to Ireland. The need to replenish pipelines, robust free cash flow at large biotech/pharma companies and low financing rates are also tailwinds. These trends should continue into 2016, outside a global recession.

    Value & Growth:

    With global economic activity at its lowest levels since emerging from the financial crisis in 2009 and the domestic economy bumping along with below trend 2% GDP growth, it is hard to find companies whose stocks are priced reasonably and that can deliver both earnings & revenue growth. Year-over-year profits within the S&P 500 will decline in 2015 for the first time in a half dozen years.

    Most stocks that are managing to produce impressive sales and earnings growth like Amazon (NASDAQ:AMZN) are priced at sky high earnings multiples. In contrast there are good values and growth in numerous large cap names within biotech right now. Take AbbVie (NYSE:ABBV) for example. Earnings should clock in with a 25% to 30% gain this year and the consensus has the company producing another 15% to 20% increase in FY2016. Revenues are increasing in the mid-teens and the stock also pays a robust 3.7% dividend yield. The best part is the stock is trading at 12 times forward earnings, two thirds of the overall market multiple. Other good combinations of growth, value and yield include Amgen (NASDAQ:AMGN) and the aforementioned Gilead Sciences.

    These discounted valuations on some of the biggest names in biotech are my final reason I think the biotech sector will outperform the market in 2016. That is my take for today. I hope everyone has very happy Turkey Day and I will back here on Friday.

    Thank You & Happy Hunting

    Bret Jensen

    Founder, Biotech Forum

    Tags: IBB, Biotech
    Nov 25 10:51 AM | Link | 16 Comments
  • The Commodity Collapse Continues

    My regular readers know that my biggest worry for 2016 is the accelerating impacts from collapsing commodity and crude prices. I have highlighted this many times as I do not think the market is appropriately pricing in the likelihood that the dismal state of these markets morphs into a significant "credit event" that brings significant turmoil to the equity markets in the New Year. This could be a replay of the deep but short lived Russian default scenario that rocked markets briefly in 1998 when oil was in the teens.

    It is hard to overstate how ugly it is getting in these markets. Iron is at lows not seen since the financial crisis at barely over $43 a metric ton. Some pundits see the price falling under $40 a ton in the near future. The fall off of demand from China (steel production is down this year which one would not expect if its economy was truly growing at the "official" seven percent GDP figure) is the primary factor along with new capacity coming on line. Copper is also at multi-year lows.

    Oil is getting some play today as Turkey downs a Russian jet that may or may not have been its territory but is still trading close to the bottom of its recent $40 a barrel to $65 a barrel range that crude should continue to be rangebound within over the next 6-12 months which I recently detailed in a free 15 page report. I continue to be completely out of the commodity and energy spaces other than an investment in giant refiner Valero (NYSE:VLO) which is holding up well.

    Argentina welcomed a new political leader this week. Unfortunately he inherits an economic mess after 12 years of populist Peronist mismanagement. Argentina, Russia, Venezuela and Brazil are in an extreme economic distress and at least one of them will default in my opinion if commodity and oil prices continue at these levels through 2016.

    I continue to raise cash with a goal of getting back to the 30% allocation I had before I bought the recent dip in the market in August & September which took me down to an approximate 15% cash level. It is hard to find much value in the market here. Ford (NYSE:F) and General Motors (NYSE:GM) continue to benefit from a robust domestic auto market as well as low gas prices which is helping high margin sales of trucks and SUVs. Both can be had for less than eight time forward earnings and yield over four percent as well.

    There are also good value in some of the large cap biotech stocks that easily beat both top and bottom line expectations during third quarter earnings season. These companies have solid balance sheets, good pipelines, impressive free cash flow and pay nice dividends. They also are selling at a significant discounts to the overall market multiple. These names include Gilead Sciences (NASDAQ:GILD), AbbVie (NYSE:ABBV) and Amgen (NASDAQ:AMGN).

    Other than that it is hard to find much value in the current market. Sorry for sounding more like "Krampus" than jolly old Saint Nick before the holiday season. However, that is my view this Tuesday during this Thanksgiving shortened trading week.

    Thank You & Happy Hunting

    Bret Jensen

    Founder, Biotech Forum

    Nov 24 12:39 PM | Link | 18 Comments
  • Celgene: Plan In Place To Double Earnings By 2020

    Barron's had a piece this weekend on four companies that could double earnings over the next few years. They were Alphabet (NASDAQ:GOOGL), Celgene (NASDAQ:CELG), Charles Schwab (NYSE:SCHW) and Electronic Arts (NASDAQ:EA). All of these plays sell for price earnings ratios well north of 20. Here are my take on each.

    (click to enlarge)

    Alphabet, formally known as Google; has a stranglehold on search but has some significant regulatory issues emerging in Europe. Schwab seems too dependent on the direction of the market and if we will ever see rising interest rates. Electronic Arts is a dominant player in a space I know little about but I do find it amazing that the latest version "Call of Duty" will have a bigger opening weekend than any movie ever made. Coming up on 50 and having a real job certainly has disadvantages! I think the last video game I played was on Intellivision.

    Celgene is a large cap biotech concern I am very familiar with given I have a stake in within my portfolio. It is also a "core" position within The Biotech Forum portfolio. The stock took a bit of the dump recently after a slightly disappointing third quarter earnings report that was slightly light on revenue and guidance. I increased my stake during this ~15% decline. Celgene has started to recover of late and the stock goes for just under $115.00 a share after shooting up past $125.00 a share in the run up into that earnings report.

    Barron's notes that the firm is shooting for just over $20 billion in revenues by FY2020. Annual sales should come in at a bit over $9 billion this year to put that in perspective. The additional sales will greatly increase margins leading to a relatively tight consensus earnings range in FY2019 currently of $11.00 to $12.00 a share. The company should post earnings of just under $5.00 a share in FY2015.

    The magazine further notes and I concur that Celgene has a deep and evolving pipeline. The company bought Receptos (NASDAQ:RCPT) for just over $7 billion earlier in summer and also invested $1 billion in Juno Therapeutics (NASDAQ:JUNO) to collaborate with the immunotherapy concern to develop several compounds together.

    It also observes that its blockbuster blood cancer drug Revlimid has shown promise as a "backbone" for combination drug therapies. Revlimid currently posts over $5 billion in annual sales, is seeing annual revenue growth in the low teens and has more than a decade of patent protection.

    The stock is trading at under $115.00 a share after trading above $140.00 a share in July. The median price target on Celgene is $150.00 a share by the 15 analysts that cover the company. Looking further out and putting a longer term multiple of 20 on the $11.00 to $12.00 a share analysts believe the company will earn currently in 2019 and one gets a price range of $220.00 to $240.00 a share four or five years hence. This is much higher capital appreciation than I see for the overall market over that same time span.

    (click to enlarge)

    I have taken advantage of the recent blip in the stock price to add a few shares to my core position. The shares also seem to have some longer term technical support in the $105.00 to $110.00 range.

    That is my take before we open the holiday shortened trading week.

    Thank You & Happy Hunting

    Bret Jensen

    Founder, Biotech Forum

    Tags: CELG, Biotech
    Nov 23 8:14 AM | Link | 6 Comments
Full index of posts »
Latest Followers


  • $THLD Definitely worthy of consideration for the SmallCapGems ( portfolio
    Dec 27, 2014
  • $OGXI. Looks like this possible SmallCapGem ( is heading to a much better year in 2015.
    Dec 26, 2014
  • Navidea Pharmaceuticals: An Update On My $2 Biotech Lottery Ticket $NAVB
    Dec 23, 2014
More »

Latest Comments

Posts by Themes
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.