One thing Wall Street is never short of is ideas. Technical strategies, fundamental strategies, seasonal investing, and the list goes on and on and on.
Over the years I’ve found one way to skew the odds in your favor is to combine ideas, indicators, etc…if for no other reason than a combination of strategies brings more investors, and money, to that side of the equation.
One of the ideas making the rounds on Wall Street right now (I’ve seen it commented on in a number of places) is buying XBI, the SPDR S&P Biotech ETF, at this time of year, for a spring rally. There are a number of factors behind this strategy, the overriding one being that biotech has pulled back in the fall a large percentage of the time in recent years, and then rallied.
But, instead of just buying the XBI, what if we combine our POWR Ratings with the current “buy the XBI now” strategy? This allows us to buy a basket of 5 stocks that are both in the top 20 of the XBI, by weighting, AND are top POWR Rating stocks in the biotechnology industry…as opposed to buying approximately 135 stocks that make up the entire XBI, some much better than others.
The first of these dual strategy stocks is Gilead Sciences (GILD). Gilead happens to be the number 1 rated POWR Ratings biotech stock, with a composite score 99.13% better than all the stocks in our POWR ratings database. It has particularly high ratings in Value and Quality. Gilead is also in the top 15 by weighting of the XBI stocks.
Gilead is known for its Covid-19 and HIV treatments. The company has three major treatment areas in focus, virology, oncology, and inflammatory and fibrotic diseases.
In its most recent quarter, revenue increased 11% YoY (excluding lower sales of its remdesivir drug for covid), with a particularly large jump in oncology revenue, which was up 38%. Those numbers include a hit from an HIV antitrust settlement the company was able to put behind it in the recent quarter.
Our second stock, which also happens to be the second highest rated biotechnology stock in our POWR Ratings database, is Amgen (AMGN). Amgen has an A POWR Rating and clocks in among the top 97.64% of stocks that we track. The stock has top scores in Quality and Sentiment. It’s also in the top 10, by weighting, of the XBI stocks.
As of its latest report, Amgen has over 35 drugs in its pipeline, with the identified potential to treat over 50 serious illnesses. Over 25 of these drugs are in phase 3 trials at this point.
In its most recent quarter, revenue increased 7% YoY (ignoring a 1% currency hit) to $7 billion. Amgen has a PE of just over 19, and a dividend yield right at 3%. The company has incredible gross margins, at over 75%, and even operating margins come in at a robust 35.78%.
Working down our list, next is United Therapeutics (UTHR). United Therapeutics gets an overall B rating in the POWR Ratings, and is in the top 89% of the stocks we track. The stock is a star in our Value and Quality components. And UTHR is in the top ten XBI holdings as well.
United Therapeutics is currently hitting on all cylinders. In its latest earnings release, Martine Rothblatt, Ph.D., Chairperson and Chief Executive Officer stated, “I’m thrilled that United Therapeutics continues to report double-digit revenue growth and our highest quarterly revenue ever.” Revenue grew by 28% YoY to $596.5 million.
Particularly strong was their pulmonary hypertension drug, Tyvaso, which launched mid-2022. Net sales in this drug alone grew 31% as it penetrated further into the hypertension market.
UTHR has a lowly PE of only 13, with gross margins of over 91% and operating margins topping 51%.
Our fourth stock is Biogen (BIIB) which has been in the news since late last year, as its Alzheimer's drug, Lecanemab, was reported to slow Alzheimer's progression by up to 27% in an early onset study over an 18-month period.
The stock jumped from about $200 to $280 on this news, and, in the subsequent year, has traded to almost $320. But recently, it has settled back to a more reasonable price in the $250-60 range.
Biogen has an overall B rating in our POWR Ratings, scoring particularly high on the Value, Quality and Sentiment components. Its Value rating in particular is stellar, at 94.27%. BIIB is also in the top 15 XBI holdings.
In its most recent earnings release, President and Chief Executive Officer Christopher A. Viehbacher reported, “In the second quarter, Biogen continued to advance groundbreaking science with the FDA approval of two first-in-class therapies for Alzheimer's disease and ALS, while also delivering on our base business expectations.”
The company trades at a PE of just over 14, with operating margins a tick over 24%. Biogen also announced in its latest quarter that it is embarking on a review of expenses, looking to take a billion dollars out of expenses over the next two years.
Finally, our fifth stock in our POWR Ratings/XBI combination strategy is Regeneron (REGN).
Regeneron has an overall rating of B in our POWR Ratings, where it outranks 79.4% of the stocks in our database. The company has an 88.26% rating in the component of Value. And, again, it is in the top 15 holdings by weighting of the biotechnology ETF, XBI.
Regeneron’s stock has been a powerhouse over the past three years, rising from pandemic lows in the $450s to currently trade at around $840.
Its excema drug, Dupixent (I’m SURE you’ve seen the ads on TV), has been performing incredibly well. In the latest quarter net sales from the drug grew 33% YoY to $2.79 billion. Overall revenue was up 11% YoY in the quarter.
The company continues to grow and diversify its pipeline. As Regeneron President and CEO Leonard S. Schleifer, M.D., Ph.D. stated in their recent earnings release, “Regeneron delivered strong financial results in the second quarter of 2023 through increasingly diversified revenue streams, and we remain well-positioned for long-term growth.”
So, those are our 5 biotech stocks that focus, and possibly enhance, the recent “buy the XBI'' seasonal strategy. I hope this gives you an idea of how the POWR ratings can be combined with your own preferred Wall Street strategy to enhance your future returns.
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GILD shares were trading at $76.72 per share on Thursday afternoon, down $0.24 (-0.31%). Year-to-date, GILD has declined -8.02%, versus a 15.39% rise in the benchmark S&P 500 index during the same period.
About the Author: Steven Adams
After earning a law degree cum laude with a focus on securities law, Steven worked as a Nasdaq market maker for a large broker dealer, and then as a trader for an arbitrage focused proprietary hedge fund. He subsequently worked as a consultant for a Fortune 500 consulting firm serving both government and commercial clients, including the NYSE, Prudential, FDIC, and NASA.
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