Why Amgen Is a Sell and Teva Is a Buy Now

Includes: AMGN, TEVA
by: Larry Meyers

Amgen (NASDAQ:AMGN) used to be a premier biotech stock, and with good reason. Between Aranesp, EPOGEN, NEUPOGEN, the company's growth appeared to be unstoppable. But a funny thing happened on the way to a premium multiple: Growth stopped. The company's anemia drug sales became, well, anemic.

Analysts project current year sales growth of only 1.3%, and a miserly 3.6% next year. Earnings are expected to dip 1.2% this year. Five year compound growth is only 7.4%. Yet the company trades at a p/e of 11.5. Its price-to-sales ratio is 3.6. Now it is great that the company has $7 a share in cash, and produces billions in cash flow. But if it isn't growing, then why hold the stock?

A buyer of Amgen at the turn of the century who held the stock until now has seen zero return. The company doesn't even pay a dividend. Maybe if the stock become volatile again, and you can pick it up in the low 40's, you've got yourself a deal. But otherwise, why are you holding on to this no-growth biotech?

Instead, I suggest moving funds out of Amgen and into Teva Pharmaceutical Industries (NYSE:TEVA). This Israeli generic drug powerhouse has proprietary drug Copaxone, a treatment for multiple sclerosis. The generic business is exploding worldwide, and Teva has been at the forefront for decades. Current and 5-year earnings growth rates are 11%. The company generates billions in annual free cash flow, it makes excellent strategic acquisitions, and Goldman Sachs owns about 1.5% of the company. I like being on the same side of any Goldman ownership position. The company is trading at only 9 times forward estimates, the cheapest it's been in years, and only 2.5 times sales. It also pays a 1.7% dividend.

Disclosure: I am long TEVA.