Health and Healthcare

5 Top BioPharma Stocks That May Have Sold Off Too Much and Become Bargains

With many investors starting to get more scared about China, scared about Europe and even scared about the coming interest rate hike cycle from the Federal Reserve, some smart money investors may be trying to figure out which stocks have already been heavily discounted to factor in bad news already. It may be impossible to ever know if a true bottom has ever been seen, but many investors love finding great companies where they feel that a sell-off has overly punished the share price.

If there is one sector that might not care too much about interest rates, that would be health care. Still, inside of health care, the biotech and pharma sectors may not be entirely immune to the woes of the world.

24/7 Wall St. wanted to evaluate the upside or downside prospects for some of the key stocks that have already pulled back handily from their highs. Before thinking too aggressively here, it is impossible to ever know if oversold stocks will recover. Some oversold stocks can have larger problems than were priced in, and investors should never, ever try to take “all-in” bets on a bottom. Trying to catch falling daggers can be quite painful.

In an effort to see which companies might be trading at a substantial discount, the amount of a pullback was targeted at being close to 20%. That is far greater than the market. We also looked at companies that were actively traded and had a market cap north of $5 billion, and most companies were deemed to be profitable, or at least had products on the market. All have substantially higher consensus analyst price targets as well.

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Biogen

Biogen Inc. (NASDAQ: BIIB) is still a de facto leader in biotech and in multiple sclerosis drugs. A recent bout of PML side-effect cases at a competitor has not really translated to big gains, and it seems that the post-earnings woes are continuing here. Biogen shares are now down a whopping 35% from their peak, and the reality is that investors probably built in way too much upside for the potential Alzheimer’s study results, which recently were shown to be less than positive.

Biogen is one of the largest biotechs around and has been worth over $100 billion before this sharp sell-off. It is also valued at less than 20 times 2016 earnings expectations. Biogen is down only 7% so far in 2015, despite how far it is off of its $480 or so high.

Shares of Biogen closed most recently at $314.85. The stock has a consensus analyst price target of $389.93 and a 52-week trading range of $290.85 to $480.18. The market cap is $74 billion.

Illumina

Illumina Inc. (NASDAQ: ILMN) may not be down a full 20% from its peak above $242, but the stock has pulled back 15% from its highs. While it is easy to argue that its valuation needed a correction at about 60 times expected 2015 earnings, the reality is that double-digit revenue growth exists here, along with an average of about 20% in earnings growth ahead. The stock still is up 14% year to date, so the stock’s “being on-sale” may be relative.

The driving thematic force behind Illumina, now and for the coming years, is that it is the leader in genetic sequencing and array-based solutions. Certainly you have heard about the sub-$1,000 genome. If not, you have now, and you can thank Illumina for that. The company is leading in the race toward genetic analysis for personalized medicine.

Illumina shares closed at $208.59, within a 52-week trading range of $145.12 to $242.37. The consensus analyst price target is $237.75. It has a market cap of $30 billion.

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Isis Pharmaceuticals

Isis Pharmaceuticals Inc. (NASDAQ: ISIS) enjoyed a massive gain before the latest pullback. Despite losing over one-third of its value from the peak, and despite being down 18% so far in 2015, it is still up almost 50% from a year ago. Isis shares peaked in March at just over $77 and shares have slid ever lower since.

Valuation concerns here are real, but the cash balance at Isis is now $750 million, primarily due to receiving over $165 million in cash from its partners in the first half of 2015. Even better guidance has not helped shares recover, perhaps due to higher expected trial expenses, nor has completing transactions that were said to advance every element of Isis’s business.

Shares of Isis closed at $50.51, well below its consensus analyst price target of $65.00. The 52-week trading range is $33.33 to $77.80 and the market cap is $6 billion.

Mallinckrodt

Mallinckrodt PLC (NYSE: MNK) is one of those companies that is either going to be a king-maker via roll-ups or there is something else working against it that most investors are not considering. It is in a fresh deal to acquire a company called Therakos from the private equity firm Gores Group for about $1.33 billion. Mallinckrodt has been busy in deals; it acquired Cadence for $1.3 billion and Questcor Pharma for $5.6 billion, and it bought Ikaria for $2.3 billion.

The drag on Mallinckrodt is not really its name, but its HP Acthar Gel (from Questcor) seems to see slowing growth. It has lost one-quarter of its peak value, with the bulk of that drop coming very recently. It is still barely positive year to date. While it may be valued at almost 20 times trailing earnings, Mallinckrodt’s big expected growth is 2015, and it trades at less than 13 times a blended 2015/16 earnings per share expectation.

Mallinckrodt shares closed most recently at $102.33. It has a 52-week trading range of $67.18 to $134.26, a consensus price target of about $126.00, and a market cap of $12 billion.

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Mylan

Mylan N.V. (NASDAQ: MYL) owes its pullback entirely to itself, even if it would like to blame Teva. The company successfully fended off Teva’s buyout ambitions, and now Mylan is in the process of trying to acquire Perrigo. As Teva failed to win it over, that removed all the buyout premium that investors had baked into Mylan shares.

The issue to consider now is that Mylan has a very solid position and growth history in the realm of making generic drugs. Generic drug growth ahead will also be a big opportunity, and generic drug companies have serious pricing power currently and ahead as well. Mylan is also not an expensive stock at 16 times last year’s earnings, and it is even cheaper at less than 13 times a blended 2015/16 earnings estimate.

Shares of Mylan closed at $57.13. The consensus price target is $68.42, and the 52-week range is $44.80 to $76.69. It has a market cap of $28 billion.

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As far as whether these have in fact sold off too much, just keep in mind that trying to call an absolute bottom can be a fool’s game. That is certainly not the ambition in this review. Just because a stock has pulled back does not mean that it cannot keep selling off if the market does not cooperate.

Many weak stocks are weak for a reason, and weak companies often remain weak for some time before they recover. The goal here was to find leading stocks of well-known companies that act inside of the world of biotech and pharmaceutical development, where shares may now be approaching oversold territory.

ALSO READ: 3 Large Biotech Stocks to Buy Despite Higher Interest Rates Coming

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