The Medical-Biomedical and Genetics sector is off to a flying start in 2019. The sector includes large as well as small biotech companies. Merger and acquisition (M&A) activity is gaining momentum with the new tax reform in place, which is obviously a boon to any sector. The Pharma giant Bristol-Myers Squibb Company (BMY - Free Report) announced that it will acquire the biotech Celgene Corporation in a cash and stock transaction with an equity value of approximately $74 billion. This was soon followed by the Eli Lilly and Company’s (LLY - Free Report) announcement to acquire small biotech, Loxo Oncology, Inc. (LOXO - Free Report) for $235.00 per share in cash or approximately $8.0 billion.
The sector has however, underperformed the S&P 500. The biotech industry has declined 22.9% compared with the S&P 500 decrease of 5.4%, probably because of some pipeline setbacks faced by the industry.
Rising demand for new products, rampant innovation and product line extensions, strong clinical study results plus frequent FDA approvals keep this sector on the growth track. There were quite a few key approvals in 2018 which include Gilead Sciences’ HIV regimen, Biktarvy; Vertex Pharmaceuticals’ Symdeko (tezacaftor/ivacaftor and ivacaftor) for the treatment of cystic fibrosis (CF); Amgen’s Aimoviq for addressing migraine; Regeneron Pharmaceuticals’ Libtayo and BioMarin’s Palynziq for treating phenylketonuria et al. Such nods should boost the respective companies’ top lines as a few are struggling with sales decline of legacy drugs.
Meanwhile, government scrutiny of high drug prices, pricing and competitive pressure, slowdown in sales of some of the most high-profile older drugs and major pipeline setbacks act as deterrents to growth.
We believe that pipeline success, cost-cutting, share buybacks, product launches, increased M&A and collaboration activity plus appropriate utilization of cash should favor the drug/biotech sector.
How to Pick Probable Q4 Winners?
There are multiple drug/biotech companies poised to beat on fourth-quarter earnings. However, given the large number of drug/biotech firms, the task of selecting stocks with possibilities to surpass expectations could appear quite daunting.
With the help of the Zacks Stock Screener, we have zeroed in on five drug/ biotech stocks that carry a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) and a positive Earnings ESP. It is a valuable tool for investors looking for stocks with the maximum potential to beat estimates. Our research shows that with this combination, chances of a positive surprise are as high as 70%. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.
5 Stocks Set to Surpass Mark
Celgene Corporation (CELG - Free Report) has an Earnings ESP of +2.31% and a Zacks Rank of 1. The Zacks Consensus Estimate for fourth-quarter 2018 is pegged at $2.32. The company has a trailing four-quarter average positive surprise of 2.54%. It is expected to report on Jan 24. You can see the complete list of today’s Zacks #1 Rank stocks here.
Regeneron Pharmaceuticals Inc. (REGN - Free Report) has an Earnings ESP of +6.12% and a Zacks Rank #3. The Zacks Consensus Estimate for fourth-quarter 2018 earnings stands at $5.68. The company’s earnings topped estimates in the last four reported quarters, the average being 10.97%. The company is slated to release earnings on Feb 14, before the market opens.
Amgen Inc. (AMGN - Free Report) has an Earnings ESP of +0.25% and a Zacks Rank of 3. The Zacks Consensus Estimate for fourth-quarter 2018 is projected at $3.26. The company’s earnings trumped estimates in three of the preceding four reported quarters, the average earnings surprise being 4.80%. It is scheduled to announce earnings numbers on Jan 29 after market close.
Alnylam Pharmaceuticals Inc. (ALNY - Free Report) )has an Earnings ESP of +1.65% and is a Zacks #3 Ranked player. The consensus estimate for fourth-quarter bottom line is pegged at a loss of $1.97. The company is anticipated to report earnings on Feb 14.
bluebird bio, Inc. (BLUE - Free Report) has an Earnings ESP of +5.87% and is a #3 Ranked stock. The consensus mark for the fourth quarter stands at a loss of $2.78. The company will announce results on Feb 20.
Zacks' Top 10 Stocks for 2019
In addition to the stocks discussed above, wouldn't you like to know about our 10 finest buy-and-holds for the year?
From more than 4,000 companies covered by the Zacks Rank, these 10 were picked by a process that consistently beats the market. Even during 2018 while the market dropped -5.2%, our Top 10s were up well into double-digits. And during bullish 2012 – 2017, they soared far above the market's +126.3%, reaching +181.9%.
This year, the portfolio features a player that thrives on volatility, an AI comer, and a dynamic tech company that helps doctors deliver better patient outcomes at lower costs.
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