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Amgen is literally one of the world’s biotech pioneers. Founded in California in 1980 and going public three years later, the company – formerly known as American Molecular Genetics – has been on the cutting edge of genetic therapeutics, molecular biology and biochemistry for almost 40 years.
Following the 2009 acquisition of Genentech – an early competitor in recombinant DNA technology – by Roche, Amgen became the world’s largest stand-alone biotechnology research and development company.
Amgen’s first blockbuster product was synthetic human erythropoietin that had been produced in cell culture using non-human animal eggs. The technique was lauded as brilliantly creative at the time - as well as covered by extensive patent protection. Epogen was approved by the FDA in 1989 for the treatment of chronic anemia as a result of kidney disease, and approvals for use in cancer, HIV and other critical ill patients soon followed. By 2002 it was the single-most paid-for pharmaceutical by Medicare with reimbursements of over $2 billion annually.
Neupogen is still marketed by Amgen and also sold under the brand named “Procrit” through a licensing agreement with Johnson and Johnson.
In fact, Erythropoietin is soeffective at helping the human body produce red blood cells under stressful conditions that Epogen was added to the World Anti-Doping Agency’s “banned” list and was the subject of many failed drug tests by healthy endurance athletes who had obtained it illegally and used it as a performance-enhancing drug.
Amgen continued to use unique and creative techniques for developing precisely targeted therapeutic biologicals based on naturally occurring human compounds for a wide range of afflictions, including kidney failure, osteoporosis, migraines, auto-immune disorders and many more serious illnesses.
Starting in 1994, Amgen also started making strategic acquisitions of smaller biotech companies who owned promising intellectual property that fit well into the Amgen stable of treatments. Among the 17 companies acquired in the past 25 years was Immunex, which was on the verge of approval for its rheumatoid arthritis drug Enbrel, now another Amgen blockbuster with annual sales of over $5 billion.
Current pharmaceutical offerings like Neulasta, Neupogen and Repatha headline a list of 18 drugs that are currently being sold by Amgen or its partners - producing $23 billion in annual revenues.
The company also continues to use state-of-the-art science to investigate new treatments for serious illnesses. They currently have 24 compounds in Phase 1 trials, 2 in Phase 2 and 5 in Phase 3 – as well as countless experiments running on pre-trial drug ideas.
It's exactly that combination of huge-selling and profitable drugs and a full pipeline of candidates for the next generation of success stories that make Amgen such a compelling investment. The typical narrative for a small startup biotech is that they have a low number of potential drugs in development or even in trials, and with little or no revenues, significant costs and essentially infinate pricing multiples, investors are quick to unload shares at the first sign of any trouble.
Amgen is already so far past that stage that they look attractive on a valuation basis just based on current lines of business. The potential for new best-selling drugs is just gravy for shareholders.
With a forward P/E Ratio of just 13.7X and an annual dividend yield of 3%, Amgen can be viewed simultaneously as a Value stock, a Growth stock and an Income stock.
Twelve upward analyst revisions in the past 60 days have brought the Zacks Consensus Earnings Estimate for 2019 from $13.90/share to $14.30 and help earn Amgen a Zacks Rank #1 (Strong Buy). 2020 estimates have been rising on a similar trajectory over the same period – from $14.78 to $15.42/share.
Pharmaceutical companies tend to be steady performers, producing sales gains even in difficult economic conditions, but with little chance of huge growth. Early-stage Biotechs have explosive potential, but they also have a tendency to implode when things don’t go as planned.
Owning Amgen shares allows a savvy investor to experience the best of both worlds.
The Walt Disney Company is the world’s largest media and entertainment company with a market capitalization of $246 billion. A component of the Dow Jones Industrial Average for the past 28 years, it’s a part of countless investors’ portfolios and likely will be for the foreseeable future.
Disney’s formidable catalog of entertainment content and other popular assets (including theme parks, cruise ships, sports teams and media companies like ESPN) make it the 800-pound gorilla in the entertainment business - the giant that all challengers tend to be judged against.
Almost all of us grew up with Disney products, from animated features and live action movies to television shows and, if we were lucky, a trip to Disneyland in California or Disneyworld in Florida. The Mickey Mouse mascot is recognized all over the world and continues to introduce new generations of Disney fans (and future customers) to the brand.
So how could an American success story and industry juggernaut like Disney possibly be the Zacks Bear of the Day?
Streaming.
The entertainment world is changing rapidly and an ever-increasing number of global consumers want their audio and video entertainment options to be delivered to them wirelessly on electronic devices. The established leader in Streaming has been Netflix but a huge number of new entrants in the market look to significantly change the landscape.
Disney is about to be one of those new entrants and there’s going to be plenty of competition. A comprehensive list of (existing and planned) streaming services would literally take too much space, but the major players are Netflix, Amazon Prime Video, Hulu, Sling, YouTube TV (owned by Google parent Alphabet, CBS All-Access, Sony Playstation Vue, HBO Now and a new offering from Apple - Apple TV Plus, which will debut on November 1st for $4.99/month and will also be included for free for a year for purchasers of a new Apple Phone, Tablet or Computer.
Netflix alone will spend $15 billion on original content in 2019 in an effort to retain the customers who have grown accustomed – and in some cases, borderline addicted - to its popular offerings. Apple has already spent an estimated $6 billion to land big talent like Reese Witherspoon, Jennifer Anniston and Aquaman-star Jason Momoa to star in it’s own original movies and series.
Apple is just getting started, and although it’s initial offerings will be limited to its own original productions, the company has somewhere around $100 billion in cash and equivalents on the balance sheet that it wants to return to shareholders. Share buybacks and dividends have been the preferred method so far, but Apple could afford to massively outspend all the other streaming competitors on content without feeling much pain.
Disney started acquiring technology and infrastructure for a streaming service in 2017 and also started pulling distribution of its content from Netflix at around the same time. Disney Plus was officially announced in November of 2018 and with the enormous catalog of entertainment options, it was expected that they would come to dominate streaming the same way they did conventional movies and television.
A couple years is forever in the world of tech however, and Disney is facing considerably more competition for streaming services than could have been predicted in 2017.
The Zacks Consensus Earnings Estimate for Disney in 2019 has fallen from $6.63/share all the way to $6.00/share in the last 90 days. 5 recent downward revisions earn Disney a Zacks Rank #5 (Strong Sell).
It would probably be a mistake to count the big giant out for long. With experienced management, plenty of assets and an enviable catalog of entertainment options, you can bet that they’ll eventually be on top again.
For the time being however, investors will probably want to steer clear of the streaming business altogether as big and small players duke it out over prices and content spending in what's shaping up to be a protracted battle.
Additional content:
Microsoft Continues Buyback Frenzy
Microsoft is up almost 2% today after the board announced the approval of a $40 billion stock buyback program and an 11% dividend increase. Microsoft is the most cash (& cash equivalent) rich company in the market and has been buying back its own stock for almost a decade.
Stock buybacks are hitting record highs as companies with excessive amounts of cash on hand want to keep shareholders happy with short-term share appreciation. Apple, Oracle and Microsoft rank amongst the largest stock repurchasers of 2019 so far.
Through the first half of the year, Apple bought back $42 billion in its shares, while Oracle repurchased $16.3 billion, and Microsoft purchased over $9 billion in its own shares. 2018 marked an all-time high for stock repurchases with a market total of over $800 billion stock buybacks.
AAPL has bought back roughly a quarter trillion dollars’ worth of its own stock over the past 5-years, while Oracle and Microsoft come in at over $70 billion in the same time frame.
These are some of the most cash rich companies in the world, but are they putting their cash to good use?
Productive Use of Money
Are share buybacks the most productive use of funds for producing long term shareholder returns? There are a few sides to this coin and they are very circumstantial. There are three things that a company can do with the cash on their balance sheet, one is let it sit in some low interest earning account, be used as commercial paper, or be put in some other fixed income vehicle. This will have very little effect on a stock price because this is what is expected from a cash pile on a company’s balance sheet.
The next thing that a company can do with extra cash is to invest in either organic developments like R&D or sales & marketing, or in a productive acquisition (full or partial). Cash used in this manner is typically the most advantageous for all stakeholders, as long as the investments have robust ROIs (return on investment). In an environment where valuations are high, acquisitions and R&D are more expensive than the projected returns. This avenue would not be the most productive use of cash.
The final use of cash that I will discuss is giving it directly back to the shareholders through dividends and stock buybacks. This use of capital will boost short-term share prices, but will it have a long-term positive effect for shareholders? A consistent dividend is a sign that a company has matured and expects a reliable stream of income moving forward. Dividends are good for a stock stability if the firm is able to maintain its dividend yield.
Stock repurchase programs will have the same short-term stock price boost as an additional dividend, but the difference is that it is not typically consistent and will only create shareholder value if the shares bought are undervalued. Buying back stock when the intrinsic worth of the stock is below its current price will deteriorate shareholder value.
Back to Microsoft
Microsoft is trading at its all-time high right now and its forward P/E has been surging over the last 5 years as investors become more excited about Microsoft’s cloud platform, Azure. Should Microsoft be buying back its own relatively expensive stock, or should the company be investing more in its cloud platform? The firm could be using the cash to further consolidate the cloud market through savvy acquisition of small cloud firms.
Like I said, high valuations make acquisitions a less attractive play and valuations in the tech industry are slightly high currently. There is only so much money that a company can poor into its R&D department before they start losing marginal value.
Though, buying stock back at all-time highs doesn’t look great for long term shareholder value, especially when its forward P/E is the highest its been in over a decade.
Take Away
I am not a big fan of companies throwing their extra cash back at the shareholders when there is still a substantial amount of growth potential. In my opinion, these tech stocks should be focusing on advancing technology and in turn humanity, instead of being worried about short-term share price boosts.
Stocks like AAPL and ORCL have shown little to no top or bottom-line growth this year but their stock price still seems to appreciate. This is primarily due to their stock buyback programs. Some of these tech companies use buybacks as merely a way to preserve their stock’s attractiveness.
There is a time and place where stock buybacks are appropriate such as when the stock price is undervalued and there are no more productive uses for the money, but this can still be speculative.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.
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Amgen, Walt Disney, Microsoft, Apple and Oracle highlighted as Zacks Bull and Bear of the Day
For Immediate Release
Chicago, IL –September 20, 2019 – Zacks Equity Research Shares of Amgen (AMGN - Free Report) as the Bull of the Day, Walt Disney Company (DIS - Free Report) asthe Bear of the Day. In addition, Zacks Equity Research provides analysis on Microsoft (MSFT - Free Report) , Apple (AAPL - Free Report) and Oracle (ORCL - Free Report) .
Here is a synopsis of all five stocks:
Bull of the Day:
Amgen is literally one of the world’s biotech pioneers. Founded in California in 1980 and going public three years later, the company – formerly known as American Molecular Genetics – has been on the cutting edge of genetic therapeutics, molecular biology and biochemistry for almost 40 years.
Following the 2009 acquisition of Genentech – an early competitor in recombinant DNA technology – by Roche, Amgen became the world’s largest stand-alone biotechnology research and development company.
Amgen’s first blockbuster product was synthetic human erythropoietin that had been produced in cell culture using non-human animal eggs. The technique was lauded as brilliantly creative at the time - as well as covered by extensive patent protection. Epogen was approved by the FDA in 1989 for the treatment of chronic anemia as a result of kidney disease, and approvals for use in cancer, HIV and other critical ill patients soon followed. By 2002 it was the single-most paid-for pharmaceutical by Medicare with reimbursements of over $2 billion annually.
Neupogen is still marketed by Amgen and also sold under the brand named “Procrit” through a licensing agreement with Johnson and Johnson.
In fact, Erythropoietin is soeffective at helping the human body produce red blood cells under stressful conditions that Epogen was added to the World Anti-Doping Agency’s “banned” list and was the subject of many failed drug tests by healthy endurance athletes who had obtained it illegally and used it as a performance-enhancing drug.
Amgen continued to use unique and creative techniques for developing precisely targeted therapeutic biologicals based on naturally occurring human compounds for a wide range of afflictions, including kidney failure, osteoporosis, migraines, auto-immune disorders and many more serious illnesses.
Starting in 1994, Amgen also started making strategic acquisitions of smaller biotech companies who owned promising intellectual property that fit well into the Amgen stable of treatments. Among the 17 companies acquired in the past 25 years was Immunex, which was on the verge of approval for its rheumatoid arthritis drug Enbrel, now another Amgen blockbuster with annual sales of over $5 billion.
Current pharmaceutical offerings like Neulasta, Neupogen and Repatha headline a list of 18 drugs that are currently being sold by Amgen or its partners - producing $23 billion in annual revenues.
The company also continues to use state-of-the-art science to investigate new treatments for serious illnesses. They currently have 24 compounds in Phase 1 trials, 2 in Phase 2 and 5 in Phase 3 – as well as countless experiments running on pre-trial drug ideas.
It's exactly that combination of huge-selling and profitable drugs and a full pipeline of candidates for the next generation of success stories that make Amgen such a compelling investment. The typical narrative for a small startup biotech is that they have a low number of potential drugs in development or even in trials, and with little or no revenues, significant costs and essentially infinate pricing multiples, investors are quick to unload shares at the first sign of any trouble.
Amgen is already so far past that stage that they look attractive on a valuation basis just based on current lines of business. The potential for new best-selling drugs is just gravy for shareholders.
With a forward P/E Ratio of just 13.7X and an annual dividend yield of 3%, Amgen can be viewed simultaneously as a Value stock, a Growth stock and an Income stock.
Twelve upward analyst revisions in the past 60 days have brought the Zacks Consensus Earnings Estimate for 2019 from $13.90/share to $14.30 and help earn Amgen a Zacks Rank #1 (Strong Buy). 2020 estimates have been rising on a similar trajectory over the same period – from $14.78 to $15.42/share.
Pharmaceutical companies tend to be steady performers, producing sales gains even in difficult economic conditions, but with little chance of huge growth. Early-stage Biotechs have explosive potential, but they also have a tendency to implode when things don’t go as planned.
Owning Amgen shares allows a savvy investor to experience the best of both worlds.
Bear of the Day:
The Walt Disney Company is the world’s largest media and entertainment company with a market capitalization of $246 billion. A component of the Dow Jones Industrial Average for the past 28 years, it’s a part of countless investors’ portfolios and likely will be for the foreseeable future.
Disney’s formidable catalog of entertainment content and other popular assets (including theme parks, cruise ships, sports teams and media companies like ESPN) make it the 800-pound gorilla in the entertainment business - the giant that all challengers tend to be judged against.
Almost all of us grew up with Disney products, from animated features and live action movies to television shows and, if we were lucky, a trip to Disneyland in California or Disneyworld in Florida. The Mickey Mouse mascot is recognized all over the world and continues to introduce new generations of Disney fans (and future customers) to the brand.
So how could an American success story and industry juggernaut like Disney possibly be the Zacks Bear of the Day?
Streaming.
The entertainment world is changing rapidly and an ever-increasing number of global consumers want their audio and video entertainment options to be delivered to them wirelessly on electronic devices. The established leader in Streaming has been Netflix but a huge number of new entrants in the market look to significantly change the landscape.
Disney is about to be one of those new entrants and there’s going to be plenty of competition.
A comprehensive list of (existing and planned) streaming services would literally take too much space, but the major players are Netflix, Amazon Prime Video, Hulu, Sling, YouTube TV (owned by Google parent Alphabet, CBS All-Access, Sony Playstation Vue, HBO Now and a new offering from Apple - Apple TV Plus, which will debut on November 1st for $4.99/month and will also be included for free for a year for purchasers of a new Apple Phone, Tablet or Computer.
Netflix alone will spend $15 billion on original content in 2019 in an effort to retain the customers who have grown accustomed – and in some cases, borderline addicted - to its popular offerings. Apple has already spent an estimated $6 billion to land big talent like Reese Witherspoon, Jennifer Anniston and Aquaman-star Jason Momoa to star in it’s own original movies and series.
Apple is just getting started, and although it’s initial offerings will be limited to its own original productions, the company has somewhere around $100 billion in cash and equivalents on the balance sheet that it wants to return to shareholders. Share buybacks and dividends have been the preferred method so far, but Apple could afford to massively outspend all the other streaming competitors on content without feeling much pain.
Disney started acquiring technology and infrastructure for a streaming service in 2017 and also started pulling distribution of its content from Netflix at around the same time. Disney Plus was officially announced in November of 2018 and with the enormous catalog of entertainment options, it was expected that they would come to dominate streaming the same way they did conventional movies and television.
A couple years is forever in the world of tech however, and Disney is facing considerably more competition for streaming services than could have been predicted in 2017.
The Zacks Consensus Earnings Estimate for Disney in 2019 has fallen from $6.63/share all the way to $6.00/share in the last 90 days. 5 recent downward revisions earn Disney a Zacks Rank #5 (Strong Sell).
It would probably be a mistake to count the big giant out for long. With experienced management, plenty of assets and an enviable catalog of entertainment options, you can bet that they’ll eventually be on top again.
For the time being however, investors will probably want to steer clear of the streaming business altogether as big and small players duke it out over prices and content spending in what's shaping up to be a protracted battle.
Additional content:
Microsoft Continues Buyback Frenzy
Microsoft is up almost 2% today after the board announced the approval of a $40 billion stock buyback program and an 11% dividend increase. Microsoft is the most cash (& cash equivalent) rich company in the market and has been buying back its own stock for almost a decade.
Stock buybacks are hitting record highs as companies with excessive amounts of cash on hand want to keep shareholders happy with short-term share appreciation. Apple, Oracle and Microsoft rank amongst the largest stock repurchasers of 2019 so far.
Through the first half of the year, Apple bought back $42 billion in its shares, while Oracle repurchased $16.3 billion, and Microsoft purchased over $9 billion in its own shares. 2018 marked an all-time high for stock repurchases with a market total of over $800 billion stock buybacks.
AAPL has bought back roughly a quarter trillion dollars’ worth of its own stock over the past 5-years, while Oracle and Microsoft come in at over $70 billion in the same time frame.
These are some of the most cash rich companies in the world, but are they putting their cash to good use?
Productive Use of Money
Are share buybacks the most productive use of funds for producing long term shareholder returns? There are a few sides to this coin and they are very circumstantial. There are three things that a company can do with the cash on their balance sheet, one is let it sit in some low interest earning account, be used as commercial paper, or be put in some other fixed income vehicle. This will have very little effect on a stock price because this is what is expected from a cash pile on a company’s balance sheet.
The next thing that a company can do with extra cash is to invest in either organic developments like R&D or sales & marketing, or in a productive acquisition (full or partial). Cash used in this manner is typically the most advantageous for all stakeholders, as long as the investments have robust ROIs (return on investment). In an environment where valuations are high, acquisitions and R&D are more expensive than the projected returns. This avenue would not be the most productive use of cash.
The final use of cash that I will discuss is giving it directly back to the shareholders through dividends and stock buybacks. This use of capital will boost short-term share prices, but will it have a long-term positive effect for shareholders? A consistent dividend is a sign that a company has matured and expects a reliable stream of income moving forward. Dividends are good for a stock stability if the firm is able to maintain its dividend yield.
Stock repurchase programs will have the same short-term stock price boost as an additional dividend, but the difference is that it is not typically consistent and will only create shareholder value if the shares bought are undervalued. Buying back stock when the intrinsic worth of the stock is below its current price will deteriorate shareholder value.
Back to Microsoft
Microsoft is trading at its all-time high right now and its forward P/E has been surging over the last 5 years as investors become more excited about Microsoft’s cloud platform, Azure. Should Microsoft be buying back its own relatively expensive stock, or should the company be investing more in its cloud platform? The firm could be using the cash to further consolidate the cloud market through savvy acquisition of small cloud firms.
Like I said, high valuations make acquisitions a less attractive play and valuations in the tech industry are slightly high currently. There is only so much money that a company can poor into its R&D department before they start losing marginal value.
Though, buying stock back at all-time highs doesn’t look great for long term shareholder value, especially when its forward P/E is the highest its been in over a decade.
Take Away
I am not a big fan of companies throwing their extra cash back at the shareholders when there is still a substantial amount of growth potential. In my opinion, these tech stocks should be focusing on advancing technology and in turn humanity, instead of being worried about short-term share price boosts.
Stocks like AAPL and ORCL have shown little to no top or bottom-line growth this year but their stock price still seems to appreciate. This is primarily due to their stock buyback programs. Some of these tech companies use buybacks as merely a way to preserve their stock’s attractiveness.
There is a time and place where stock buybacks are appropriate such as when the stock price is undervalued and there are no more productive uses for the money, but this can still be speculative.
5 Stocks Set to Double
Each was hand-picked by a Zacks expert as the #1 favorite stock to gain +100% or more in 2020. Each comes from a different sector and has unique qualities and catalysts that could fuel exceptional growth.
Most of the stocks in this report are flying under Wall Street radar, which provides a great opportunity to get in on the ground floor.
Today, See These 5 Potential Home Runs >>
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Zacks.com provides investment resources and informs you of these resources, which you may choose to use in making your own investment decisions. Zacks is providing information on this resource to you subject to the Zacks "Terms and Conditions of Service" disclaimer. www.zacks.com/disclaimer.
Past performance is no guarantee of future results. Inherent in any investment is the potential for loss.This material is being provided for informational purposes only and nothing herein constitutes investment, legal, accounting or tax advice, or a recommendation to buy, sell or hold a security. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. It should not be assumed that any investments in securities, companies, sectors or markets identified and described were or will be profitable. All information is current as of the date of herein and is subject to change without notice. Any views or opinions expressed may not reflect those of the firm as a whole. Zacks Investment Research does not engage in investment banking, market making or asset management activities of any securities. These returns are from hypothetical portfolios consisting of stocks with Zacks Rank = 1 that were rebalanced monthly with zero transaction costs. These are not the returns of actual portfolios of stocks. The S&P 500 is an unmanaged index. Visit https://www.zacks.com/performancefor information about the performance numbers displayed in this press release.