Health and Healthcare

Merrill Lynch Loves Large Cap Biotech: 4 Top Stocks to Buy Now

Lee Jackson

Published: September 27, 2018 8:35 am

Last Updated: January 11, 2020 5:15 pm

More and more, the companies that we cover on Wall Street are starting to agree that while the future’s still bright for the U.S. economy, it may be one of stock market gains that are much lower than the norm has been over the past 10 years. When that is the case, then investing strategies often shift from indexing to a more disciplined stock-picking routine, and that’s when investors need solid growth ideas.

The team at Merrill Lynch recently highlighted sectors they considered a good opportunity now that are likely to outperform in the near term, and the sector that rated highest was biotechnology. We screened the Merrill Lynch biotechnology research universe and found four large-cap biotech companies rated Buy that look like solid fourth quarter plays.

Amgen

This biotech giant remains a top stock for investors to buy and a safe way to play the massive potential growth in biosimilars. Amgen Inc. (NASDAQ: AMGN) has been a biotechnology pioneer since 1980 and has grown to be one of the world’s leading independent biotech companies. It has reached millions of patients around the world and is developing a pipeline of medicines with breakaway potential.

Amgen develops, manufactures and markets biologic therapies for oncology and inflammation. The company’s five key marketed products are among the top-selling pharmaceutical products in the world, with expected collective revenues of more than $22 billion in 2018.

Shareholders are paid a 2.55% dividend. The Merrill Lynch price target for the stock is $220, and the Wall Street consensus target is $204.05 The shares closed Wednesday at $206.83.

Biogen

This large-cap biotech will partner with Samsung Bioepis in the biosimilar world. Biogen Inc. (NASDAQ: BIIB) discovers, develops and delivers to patients worldwide innovative therapies for the treatment of neurodegenerative diseases, hematologic conditions and autoimmune disorders. Founded in 1978, Biogen is one of the world’s oldest independent biotech companies, and patients worldwide benefit from its leading multiple sclerosis (MS) and innovative hemophilia therapies.

The company markets three products, Avonex, Tysabri and Tecfidera, that combined have the leading share of the worldwide $18 billion MS market. Merrill Lynch feels the company will be a big winner with the lower corporate tax rate as it has extensive operations in the United States.

Merrill Lynch has a $400 price objective, while the consensus price target is $389.20 The shares closed Wednesday at $349.37.

Regeneron Pharmaceuticals

This is a top biotech play for aggressive accounts to consider. Regeneron Pharmaceuticals Inc. (NASDAQ: REGN) is a biopharmaceutical company focused on the development of therapeutic human antibodies for the treatment of eye disorders, hypercholesterolemia, cancer, inflammation and other diseases.

Regeneron’s product sales are driven principally by its VEGF inhibitor Eylea, which is approved for use in wet age-related macular degeneration and diabetic macular edema, and by Praluent for the treatment of hypercholesterolemia.

This is another company with extensive operations in the United States and a current high tax rate. A lower corporate rate could be huge for the bottom line.

The $475 Merrill Lynch price target compares with the $406.05 consensus target and the most recent close at $391.53 a share.

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Vertex Pharmaceuticals

This one has long been considered a buyout candidate and it is on the Merrill Lynch US 1 list. Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) engages in discovering, developing, manufacturing and commercializing small molecule drugs for patients with serious diseases in specialty markets. The company focuses on developing and commercializing therapies for the treatment of cystic fibrosis and hepatitis C.

Wall Street as a whole has long been very positive on the stock, and some have indicated that the company could have as much as $10 in potential earnings-per-share power. The company has upcoming clinical data that could be big and the analysts noted this:

Vertex will report Phase 3 interim data from triple combination regimens of VX-659 and VX-445 in late 2018 and the first quarter of 2019, respectively. Interim analyses will enable VRTX to determine the best regimen to submit for FDA application by mid-2019. We are encouraged by completion of Phase 3 enrollment of VX-659, suggesting strong demand for treatment.

Merrill Lynch has set its price target at $197. The consensus target is $196.52, and shares closed Wednesday at $186.65.

These four large-cap leaders could be solid fourth-quarter trades for accounts that are looking for near-term upside. They also are outstanding long-term holds as they are industry leaders and pose far less downside risk than some others in the sector.