Below, we've pinpointed a biotech stock that enjoys four catalysts that will soon spark rocket-like gains:
1. A history of earnings growth;
2. A streak of earnings surprises;
3. Recently raised earnings guidance; and
4. Anticipation of a major regulatory event.
2. A streak of earnings surprises;
3. Recently raised earnings guidance; and
4. Anticipation of a major regulatory event.
With leading-edge drug treatments in development, this company should tap long-term growth while its peers struggle with the headwinds of patent expirations and government cost-containment. Let's take a look at a stock that combines safety with groundbreaking research and development.
Teva Pharmaceuticals (TEVA - Get Report) is the world's biggest manufacturer and marketer of generic drugs. Based in Israel, the company also develops patented biologic treatments, which are derived from humans, animals or microorganisms. Biologics can be composed of proteins, sugars, or living cells and tissues.
TEVA data by YCharts
Biologic drugs are crucial in cancer research and treatment today, but many have either already lost or stand on the verge of losing patent protection. This is paving the way for "biosimilars," which are generic, less expensive copies of biologics.
With a market cap of more than $52 billion, Teva stands in the forefront of biosimilar research and development. The company is now readying several new gene-based biosimilar drugs for market.
Teva also owns a global patent portfolio of more than 1,000 molecules. The company's biggest selling products include Copaxone for the treatment of multiple sclerosis; Provigil and Nuvigil for narcolepsy and other sleep disorders; and Azilect for Parkinson's disease.
As patents expire, the pressure for drug companies to find untapped opportunities is fierce, compelling companies such as Teva to pursue treatments for rare diseases.
The development of orphan drugs is a booming niche and Teva has been muscling in. The company is developing cancer drugs in orphan and other cancer indications for the treatment of patients who are failing to respond to existing conventional therapies.
The federal Orphan Drug Act grants special status to a product to treat a rare disease or condition upon request of a sponsor. An orphan drug is a pharmaceutical developed to treat a disease that affects fewer than 200,000 people.
As the unfolding global health emergency over the Zika virus shows, the demand for orphan drugs is exploding.
To reiterate, among the "trigger criteria" we look for in an innovative, R&D-oriented company are earnings growth, a streak of earnings surprises, raised guidance, and an imminent regulatory event that could light a fire under the stock. Teva fits the bill on all counts.
Teva reported third quarter 2015 earnings-per-share (EPS) of $1.35, a year-over-year increase of 2% and beating the consensus estimate of $1.29. That was the fifth positive earnings surprise in a row. For the first nine months of 2015, Teva reported EPS of $4.14, up 9% compared to $3.82 in the first nine months of 2014.
Management recently raised EPS guidance for full-year 2015 to $5.40-to-$5.45 from $5.15-to-$5.40, compared to reported EPS of $5.07 for full-year 2015. So as you can see, Teva boasts a strong history of earnings growth and surprises, as well as recently raised earnings guidance.
And we look for event catalysts, such as pending regulatory decisions. Teva this month made a takeover offer valued at $40.5 billion to acquire the generics operation of Allergan. The deal, which would combine the Nos. 1 and 3 generic drug marketers in the U.S., is pending review by the U.S. Federal Trade Commission (FTC). If approved (as expected), Teva's stock would take off.
Of course, the FTC could reject the merger on anti-trust grounds, which would probably weigh on the stock over the short term, but Teva possesses numerous inherent advantages that make it a great investment, regardless.
Because it amply meets our three other momentum criteria, it has the wherewithal to weather short-term adversity and belongs to a group of high-tech pioneers that should beat the market's gyrations and downward momentum in 2016.
With the stock now trading at about $61, the median analyst projection for a one-year price target is $77, for a gain of about 26%. On the high-end, the one-year price projection is $100, for a gain of roughly 64%. Those gains look pretty good, in the context of a volatile market this year that many analysts are saying could descend into bear territory.
Teva's trailing 12-month price-to-earnings (P/E) ratio is about 29, roughly in line with the drug manufacturing industry and certainly less than the trailing P/E of 51.55 for major biotech competitor Celgene. Teva's dividend yield of 2.2% is icing on the cake.
By John Persinos
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