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Biotech Stocks Outperform During Inversions: 5 Must Watch
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Traditionally, an inverted yield curve indicates a recession in a year or two. And that surely is a bearish signal for the Wall Street. But, biotech stocks tend to outdo during a period of inverted yield curves. Lest we forget, the yield curve inverted on Mar 22, 2019, for the first time since 2007. This means that rates for long-term bonds, especially, 10-year Treasury yields dropped below short-term bonds.
An inverted yield curve generally precedes a recession by nearly 15-24 months. And during this period before recession starts, biotech stocks gains momentum only to underperform in the late expansion period ahead of a recession. Nonetheless, biotech stocks do often tend to bounce back post-recession.
Biotech stocks, by the way, have been underperforming since around 2013 mostly due to yield curve remaining flat. Small-cap biotech stocks, primarily, slipped 9%. However, now that the yield curve has inverted, such stocks could outperform. It’s worth pointing out that biotech stocks, historically, notched the strongest performance when the yield for a 30-year Treasury bond fell below the yield for a 2-year bond.
Thus, biotech stocks are now some of the most exciting investments on Wall Street. But, it’s a risky business, for sure. When a company successfully completes a drug trial, its shares climb north. And if it fails, its shares plummet. At the same time, considering an early-stage biotech player can be highly speculative. Nevertheless, for more experienced investors, who want to make the most of this lucrative space, here are the top five biotech stocks to watch out for –
Celgene
Celgene Corporation discovers, develops and commercializes therapies for the treatment of cancer and inflammatory diseases. The company isn’t a small development stage drug maker but a biotech giant that is projected to register $17 billion in revenues this year.
Moreover, Bristol-Myers Squibb Company (BMY - Free Report) may acquire Celgene for $74 billion or about $102.50 per share, something that should bode well for Celgene. Bristol-Myers Squibb, in the meanwhile, could use an array of Celgene’s products to broaden its portfolio. But, even if
Bristol-Myers Squibb fails to acquire Celgene, the $61-billion company remains one of the heavyweights in the biotech space for the long run.
And why not? Celgene reported 16% growth in revenues and 20% adjusted growth in profits in the fourth quarter. To top it, management expects profits to grow another 21% this year to a range of $10.60 to $10.80 per share.
Celgene currently has a Zacks Rank #1 (Strong Buy). In the past 60 days, the company has seen eight earnings estimates move north, while one moved south for the current year. The Zacks Consensus Estimate for earnings rose 3.5% in the same period. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company’s expected earnings growth rate for the current year is almost 21%, more than the Medical - Biomedical and Genetics industry’s projected rise of 6%. The company has outperformed the broader industry so far this year (+36.4% vs +9.5%).
Puma Biotechnology
Puma Biotechnology, Inc. (PBYI - Free Report) focuses on the development and commercialization of products to enhance cancer care. The company’s shares soared to an all-time high of around $270 in 2015, thanks to positive results for a breast cancer treatment. But, its shares fell as sales didn’t materialize. However, the company now projects revenue growth of about 18% for this year as sales have started to pick up pace.
Puma Biotechnology has also established a good relationship with Pfizer Inc. (PFE - Free Report) in conducting early drug trials. Puma Biotechnology currently has a Zacks Rank #2 (Buy).
In the past 60 days, the company has seen four earnings estimates move north, while one moved south for the current year. The Zacks Consensus Estimate for earnings rose more than 100% in the same period. The company’s earnings growth rate of 91.5% so far this year is higher than the Medical - Biomedical and Genetics industry’s estimated rise of 9.5%.
Exelixis
Exelixis, Inc. (EXEL - Free Report) , an oncology-focused biotechnology company, focuses on the discovery, development, and commercialization of new medicines to treat cancer. Things are currently looking up for the company. Its flagship cancer drug, Cabometyx, recently got FDA approval for additional use. Needless to say, the company generated almost $620 million in revenues from Cabometyx in 2018, up more than 70% from 2017.
On an earnings call last month, CEO Micheal Morrissey further added to the optimism by highlighting the company’s plans for mergers and licensing deals to add new products.
Exelixis currently has a Zacks Rank #3 (Hold). In the past 30 days, the company has seen two earnings estimates move north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 5.9% in the same period.
The company’s expected earnings growth rate for the next year is 20.1%, more than the Medical - Biomedical and Genetics industry’s projected rise of 5.2%. The company has outperformed the broader industry on a year-to-date basis (+20.1% vs +9.5%).
Enanta Pharmaceuticals
Enanta Pharmaceuticals, Inc. (ENTA - Free Report) focuses on the research and development of small molecule drugs for the treatment of viral infections and liver diseases.
Per its last earnings report, the company had $325 million in cash. This is almost 25% of its market cap, indicating financial strength.
Apart from this encouraging cash position, Enanta Pharmaceuticals has several drugs in trial stage. Once these drugs succeed in the trials, the stock price surely surge. In fact, shares of Enanta Pharmaceuticals have gained 34.5% so far this year, more than the Medical - Drugs industry’s rise of 15.3%.
Enanta Pharmaceuticals currently has a Zacks Rank #3. In the past 60 days, the company has seen three earnings estimates move up, while one moved down for the current year. The Zacks Consensus Estimate for earnings rose 19.7% in the same period.
Sage Therapeutics
Sage Therapeutics, Inc. (SAGE - Free Report) develops and commercializes novel medicines to treat central nervous system (CNS) disorders. The company’s shares hit a peak of $180 last year, when it announced positive test results for an insomnia drug. To top it, there are a plenty of other drugs in the pipeline. One of them includes a depression treatment that could help Sage Therapeutics generate $2 billion in sales by 2026.
The company currently has a Zacks Rank #3. In the past 30 days, the company has seen four earnings estimates move north, while two moved south for the current year. The Zacks Consensus Estimate for earnings rose more than 100% in the same period.
The company’s expected earnings growth rate for the current year is 54.3%, more than the Medical - Drugs industry’s projected rise of 7.8%. The company has outperformed the broader industry on a year-to-date basis (+66.9% vs +15.4%).
In fact, shares of Celgene, Puma Biotechnology, Exelixis, Enanta Pharmaceuticals and Sage Therapeutics have easily surpassed the broader S&P 500 so far this year.
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This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
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Biotech Stocks Outperform During Inversions: 5 Must Watch
Traditionally, an inverted yield curve indicates a recession in a year or two. And that surely is a bearish signal for the Wall Street. But, biotech stocks tend to outdo during a period of inverted yield curves. Lest we forget, the yield curve inverted on Mar 22, 2019, for the first time since 2007. This means that rates for long-term bonds, especially, 10-year Treasury yields dropped below short-term bonds.
An inverted yield curve generally precedes a recession by nearly 15-24 months. And during this period before recession starts, biotech stocks gains momentum only to underperform in the late expansion period ahead of a recession. Nonetheless, biotech stocks do often tend to bounce back post-recession.
Biotech stocks, by the way, have been underperforming since around 2013 mostly due to yield curve remaining flat. Small-cap biotech stocks, primarily, slipped 9%. However, now that the yield curve has inverted, such stocks could outperform. It’s worth pointing out that biotech stocks, historically, notched the strongest performance when the yield for a 30-year Treasury bond fell below the yield for a 2-year bond.
Thus, biotech stocks are now some of the most exciting investments on Wall Street. But, it’s a risky business, for sure. When a company successfully completes a drug trial, its shares climb north. And if it fails, its shares plummet. At the same time, considering an early-stage biotech player can be highly speculative. Nevertheless, for more experienced investors, who want to make the most of this lucrative space, here are the top five biotech stocks to watch out for –
Celgene
Celgene Corporation discovers, develops and commercializes therapies for the treatment of cancer and inflammatory diseases. The company isn’t a small development stage drug maker but a biotech giant that is projected to register $17 billion in revenues this year.
Moreover, Bristol-Myers Squibb Company (BMY - Free Report) may acquire Celgene for $74 billion or about $102.50 per share, something that should bode well for Celgene. Bristol-Myers Squibb, in the meanwhile, could use an array of Celgene’s products to broaden its portfolio. But, even if
Bristol-Myers Squibb fails to acquire Celgene, the $61-billion company remains one of the heavyweights in the biotech space for the long run.
And why not? Celgene reported 16% growth in revenues and 20% adjusted growth in profits in the fourth quarter. To top it, management expects profits to grow another 21% this year to a range of $10.60 to $10.80 per share.
Celgene currently has a Zacks Rank #1 (Strong Buy). In the past 60 days, the company has seen eight earnings estimates move north, while one moved south for the current year. The Zacks Consensus Estimate for earnings rose 3.5% in the same period. You can see the complete list of today’s Zacks #1 Rank stocks here.
The company’s expected earnings growth rate for the current year is almost 21%, more than the Medical - Biomedical and Genetics industry’s projected rise of 6%. The company has outperformed the broader industry so far this year (+36.4% vs +9.5%).
Puma Biotechnology
Puma Biotechnology, Inc. (PBYI - Free Report) focuses on the development and commercialization of products to enhance cancer care. The company’s shares soared to an all-time high of around $270 in 2015, thanks to positive results for a breast cancer treatment. But, its shares fell as sales didn’t materialize. However, the company now projects revenue growth of about 18% for this year as sales have started to pick up pace.
Puma Biotechnology has also established a good relationship with Pfizer Inc. (PFE - Free Report) in conducting early drug trials. Puma Biotechnology currently has a Zacks Rank #2 (Buy).
In the past 60 days, the company has seen four earnings estimates move north, while one moved south for the current year. The Zacks Consensus Estimate for earnings rose more than 100% in the same period. The company’s earnings growth rate of 91.5% so far this year is higher than the Medical - Biomedical and Genetics industry’s estimated rise of 9.5%.
Exelixis
Exelixis, Inc. (EXEL - Free Report) , an oncology-focused biotechnology company, focuses on the discovery, development, and commercialization of new medicines to treat cancer. Things are currently looking up for the company. Its flagship cancer drug, Cabometyx, recently got FDA approval for additional use. Needless to say, the company generated almost $620 million in revenues from Cabometyx in 2018, up more than 70% from 2017.
On an earnings call last month, CEO Micheal Morrissey further added to the optimism by highlighting the company’s plans for mergers and licensing deals to add new products.
Exelixis currently has a Zacks Rank #3 (Hold). In the past 30 days, the company has seen two earnings estimates move north, while none moved south for the current year. The Zacks Consensus Estimate for earnings rose 5.9% in the same period.
The company’s expected earnings growth rate for the next year is 20.1%, more than the Medical - Biomedical and Genetics industry’s projected rise of 5.2%. The company has outperformed the broader industry on a year-to-date basis (+20.1% vs +9.5%).
Enanta Pharmaceuticals
Enanta Pharmaceuticals, Inc. (ENTA - Free Report) focuses on the research and development of small molecule drugs for the treatment of viral infections and liver diseases.
Per its last earnings report, the company had $325 million in cash. This is almost 25% of its market cap, indicating financial strength.
Apart from this encouraging cash position, Enanta Pharmaceuticals has several drugs in trial stage. Once these drugs succeed in the trials, the stock price surely surge. In fact, shares of Enanta Pharmaceuticals have gained 34.5% so far this year, more than the Medical - Drugs industry’s rise of 15.3%.
Enanta Pharmaceuticals currently has a Zacks Rank #3. In the past 60 days, the company has seen three earnings estimates move up, while one moved down for the current year. The Zacks Consensus Estimate for earnings rose 19.7% in the same period.
Sage Therapeutics
Sage Therapeutics, Inc. (SAGE - Free Report) develops and commercializes novel medicines to treat central nervous system (CNS) disorders. The company’s shares hit a peak of $180 last year, when it announced positive test results for an insomnia drug. To top it, there are a plenty of other drugs in the pipeline. One of them includes a depression treatment that could help Sage Therapeutics generate $2 billion in sales by 2026.
The company currently has a Zacks Rank #3. In the past 30 days, the company has seen four earnings estimates move north, while two moved south for the current year. The Zacks Consensus Estimate for earnings rose more than 100% in the same period.
The company’s expected earnings growth rate for the current year is 54.3%, more than the Medical - Drugs industry’s projected rise of 7.8%. The company has outperformed the broader industry on a year-to-date basis (+66.9% vs +15.4%).
In fact, shares of Celgene, Puma Biotechnology, Exelixis, Enanta Pharmaceuticals and Sage Therapeutics have easily surpassed the broader S&P 500 so far this year.
Today's Best Stocks from Zacks
Would you like to see the updated picks from our best market-beating strategies? From 2017 through 2018, while the S&P 500 gained +15.8%, five of our screens returned +38.0%, +61.3%, +61.6%, +68.1%, and +98.3%.
This outperformance has not just been a recent phenomenon. From 2000 – 2018, while the S&P averaged +4.8% per year, our top strategies averaged up to +56.2% per year.
See their latest picks free >>