Though the iShares Nasdaq Biotechnology ETF (IBB) has only gained 6.22% in 2021, compared to the 13% gain in the S&P 500, fundamentals for biotech companies continue to be attractive, as the cost of drug development has significantly declined.
In addition, the aging population ensures that demand for new therapies will remain strong. And many pharmaceutical companies have barren pipelines, so there’s potential for increased M&A activity for companies with promising treatments.
ILMN provides sequencing and array-based solutions for genetic and genomic analysis internationally. The company is one of the first players in consumer genomics and molecular diagnostics.
Many believe that genomics is one of the sectors that is going to explode over the next decade. Genomics will lead to lower costs for drug development, better diagnoses, the potential for treatments that are customized based on a patient’s DNA, and the ability to fix problems at the DNA level. The remarkable success of the Moderna (MRNA) and Pfizer (PFE) vaccines is also an indication of the field’s potential.
In its last quarter, ILMN had revenue growth of 27% to $1.1 billion. Gross profit came in at $764 million, a 23% increase from the previous year. In terms of guidance, ILMN expects $1.01 billion in revenue for Q2 which would be a 48.6% increase from the previous year. EPS is forecast to increase by 116%.
ILMN has an overall B rating, which equates to a Buy in our proprietary POWR Ratings system. B-rated stocks have posted an average annual performance of 19.7% which compares favorably to the S&P 500’s annual return of 7.1%. Click here to learn more about ILMN’s POWR Ratings.
Jazz Pharmaceuticals (JAZZ)
JAZZ develops and markets treatments in the sleep and oncology categories. Both are among the largest and fastest-growing healthcare segments. Recently, the company received approval for Vyxeos which is for the treatment of Secondary Acute Myeloid Leukemia in pediatric patients. The company also recently completed its acquisition of GW Pharmaceuticals which develops cannabis-derived treatments for cancer.
In its last quarter, JAZZ’s total revenues increased by 9% compared to Q1 of 2020. EPS increased to $2.33 from $1.29. In Q2, revenue is forecast to increase by 15% and by 11% for the full year. Over the next 5 years, analysts project annual EPS growth of 11%. JAZZ has been a strong performer with a 55% gain over the past year. It remains attractive on a valuation basis as it has a forward P/E ratio of 9.7.
Given these factors, it’s not surprising that JAZZ has an overall B rating, which equates to Buy in our POWR Ratings system. The POWR Ratings also evaluated stocks by components, and J JAZZ has an A grade for Value. Across multiple timeframes, JAZZ is cheaper than the market average despite having an impressive growth rate and rich margins. Further, the company has a successful track record of drug development and acquisitions.
AMGN is one of the pioneers in the biotechnology space. The company develops and manufactures therapeutics for the treatment of serious illness in the areas of oncology/hematology, cardiovascular disease, and neuroscience.
In its last quarter, the company’s stock dropped as revenue came in below expectations and EPS declined by 12%. However, the company attributed this to the coronavirus, and it noted that volumes were starting to pick up. It also reiterated its full-year outlook. This is a promising sign that the weakness is a buying opportunity especially as the company is quite cheap with a forward P/E of 13.5.
AMGN is rated a B by the POWR Ratings which translates to a Buy. The POWR Ratings are calculated by weighing 118 different factors, each with its own weightage. The stock has an A for Quality as it has a strong pipeline and suite of products on the market.
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AMGN shares were unchanged in after-hours trading Tuesday. Year-to-date, AMGN has gained 5.86%, versus a 13.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of POWR Growth newsletter. Learn more about Jaimini’s background, along with links to his most recent articles. More...
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