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Contributor Since 2007
This Weeks Free Stock Pick - Investing in Biotechnology Earnings Growth
Oversold conditions in stocks provide vast opportunities for investors over the long term. Due to the market negativity this quarter, companies that don't meet or exceed earnings expectations, will be punished. Now is the time to look for the companies that will counter the market trend and benefit on any market rally.
Celgene (CELG) is a Zacks Rank #1 (Strong Buy) and a perfect example where a contrarian mindset can benefit. The company is global biopharmaceutical company engaged in the discovery, development and commercialization of drugs for the treatment of cancer and inflammatory diseases. Celgene is valued with $79 Billion market cap and a Forward PE of 21.50.
The New Jersey company presented at the J.P. Morgan Healthcare Conference Monday morning and issued preliminary guidance. The results were not perceived as positive by the market, as the news knocked the stock down almost 10%. The company guided FY16 $5.50-5.70 versus the $5.71 expected, with revenues at $10.5-11 Billion versus the $11.2 Billion expected. FY15 Revlimid sales, the main EPS driver, are expected to up 16% year over year. At first glance the guidance numbers don't look great, however analyst are sticking with the story and raising estimates for 2016.
Estimates over the last 60 days are rising from $4.43 to $4.68 for FY 2016. This shows continued confidence in long-term earnings momentum, in which Celgene receives a Style Score of "B". The chart below gives us a picture into that momentum, as we see that Celgene has posted seven straight earnings surprises. It is concerning that the last two quarters have had negative price action, but we can contribute that to the overall negative atmosphere in the markets.
The chart below shows us future expected EPS growth along with the stock price. Earnings and price momentum is expected to continue through the end of the decade, if targets can be met. At the conference, the company expressed confidence that they could meet or beat 2020 financial targets.
Price action since guidance
There was a little bit of a panic after the numbers were released on Monday, but confidence returned after the initial news. We must understand the current market sentiment and how it can cause massive over reactions in even the best stocks. With market conditions so poor, Celgene has held the psychologically important $100 level since the conference. Looking at the chart below, we see a strong bounce back the day after the conference; a good sign that money was flowing back into the stock. Again this morning, that level was tested, only to bounce back strong again. The current levels provide a great long term risk/reward scenario against August lows.