Healthcare stocks should probably be core holdings in long-term portfolios because of demand tailwinds from longer-living, aging baby boomers. If you don't own shares in healthcare companies yet, three of our Motley Fool investors think now could be the perfect time to buy Celgene Corp. (NASDAQ: CELG), Abiomed (NASDAQ: ABMD), and Editas Medicine (NASDAQ: EDIT). Read on to discover if these stocks are right for your portfolio.
Management's outlook makes biotech look even better
Todd Campbell (Celgene Corp.): This could be a perfect time to buy Celgene's shares, because it just announced positive Q2 2018 financial results and plans to file for FDA approval of five potential blockbuster drugs soon.
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Celgene's share price took a hit when the FDA rejected the application for its multiple sclerosis drug, ozanimod, earlier this year. However, revenue and earnings continue to grow at a double-digit rate, and ozanimod's stumble should prove temporary.
In Q2, rising use of its multiple myeloma drugs, Revlimid and Pomalyst, helped companywide revenue grow 17% year over year to $3.8 billion. Revlimid sales increased 21% to $2.4 billion, and Pomalyst's sales increased 30% to $507 million. Their performance was so good in the quarter that Celgene increased its full-year revenue guidance to $15 billion, up from $14.8 billion.
Celgene reported $1.5 billion in net income for the quarter, and it now thinks its full-year earnings per share will clock in at least $8.70, up from $8.45 previously. Rising revenue and its decision to take advantage of lower share prices by buying back more stock contributed to the boost.
In addition to the increased full-year guidance, management also said it's on track to file five drugs with the FDA for approval that could each have peak sales potential north of $1 billion. It will file for FDA approval of fedratinib for myelofibrosis later this year, luspatercept for myelodysplastic syndromes and beta thalassemia early next year, and ozanimod for multiple sclerosis early next year. By 2020, it expects to file for approval of its genetic therapies -- bb2121 for multiple myeloma and liso-cel for blood cancers.
Revlimid is on pace to account for 65% of its sales this year, but its patents are expected to protect its market share at least until 2022. That should provide Celgene with plenty of time to launch its next-generation drugs and shore up its longer-term outlook. If so, then buying its shares now when they're trading at only 8.5 times forward EPS estimates makes sense.
Expensive, but worth it
Brian Feroldi (Abiomed): Heart disease is the No. 1 cause of death in the U.S., claiming more than 875,000 lives per year. The number is expected grow over time as the baby boomer generation continues to age.
Medical-device maker Abiomed is on a mission to give people with heart disease a fighting chance. The company sells a suite of temporary heart pumps, brand-named Impella, that keep a patient's blood flowing during certain types of cardiovascular surgery. Surgeons typically use Impella to sustain life after a patient experiences cardiogenic shock (think a big heart attack) or during a high-risk procedure. The company has the data to prove that using Impella leads to improved health outcomes and can significantly speed up recovery times.
There's an argument to be made that the enthusiasm has bid up Abiomed's stock to unreasonable levels. Shares currently trade hands for 88 times next year's earnings estimates and more than 31 times sales. These numbers would make any value investor cringe.
Despite the nosebleed valuation, I think Abiomed is still in buy territory because it has penetrated only about 9% of its current market opportunity in the United States. What's more, the company only recently launched Impella in Japan, and many other geographies remain as white space for the business.
If you believe that the company's high growth rates are sustainable, then the share price is not as outrageously expensive as it appears. That makes Abiomed a great stock for risk-loving investors to get to know.
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A positive vision for the future
Keith Speights (Editas Medicine): Motley Fool co-founder David Gardner tweeted at the beginning of 2018 some great advice: "Make your portfolio reflect your best vision for the future." I really like that idea. And it's a big reason I added Editas Medicine to my investment portfolio.
Editas Medicine is one of a handful of biotechs that focus on using CRISPR-Cas9 gene editing to cure diseases. Yes, I said cure, not just treat. Editas' lead candidate targets Leber congenital amaurosis type 10 (LCA10), the most common cause of inherited childhood blindness.
I'm not the only one who likes what Editas is doing. Allergan (NYSE: AGN) paid $90 million upfront last year to license up to five of the small biotech's gene-editing therapies targeting eye diseases, including the LCA10 program.
Can CRISPR-Cas9 really work in treating LCA10 and other diseases? Quite possibly. Editas reported very encouraging results of using the approach in non-human primates. The company hopes to soon submit for FDA approval to begin clinical testing in humans.
There are risks, however. Several potential issues have been raised in early research of CRISPR-Cas9. But I'm optimistic that Editas can succeed in spite of the hurdles. If it does, the biotech will change the world for the better -- and make investors a lot of money in the process.
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Brian Feroldi owns shares of Celgene. Keith Speights owns shares of Celgene and Editas Medicine. Todd Campbell owns shares of Celgene. His clients may have positions in the companies mentioned. The Motley Fool owns shares of and recommends Abiomed and Celgene. The Motley Fool recommends Editas Medicine. The Motley Fool has a disclosure policy.