Credit Suisse is out and pounding the table that biotechnology cannot be ignored in 2014. Biotech has been the top-performing sector for the past three years, with year-to-date performance up 73%. Given those kinds of numbers, there is every reason to believe they may be right.
Credit Suisse top analyst Ravi Mehrotra is out with his biotech outlook for 2014. In the report he points out that large-cap biotech can be a notable outperformer in 2014, based on the continued application of his team's standing "generalist growth at a reasonable price (GARP) inflows" thesis. Ravi believes the investment drivers shift from a near solitary focus on growth due to a perfect storm of blockbuster Phase III data and approvals, to one that includes: 1) top and bottom line earnings beats, 2) operating leverage, 3) agency cost and 4) strong pipeline growth.
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Here are the top biotech stocks to buy at Credit Suisse and their updated price targets for 2014.
Biogen Idec Inc. (BIIB) remains the top name in class and is an industry powerhouse. The Credit Suisse team point out that trading at just 21 times 2015 earnings, the stock is not overvalued. The Credit Suisse price target for 2014 goes to $375 from the current $290. The Thomson/First Call estimate for the stock is at $290. Biogen closed Tuesday at $285.19.
Celgene Corp. (CELG) is another mega cap name to buy at Credit Suisse. The big biotech recently presented results from an analysis that showed encouraging news for blockbuster drug Revlimid as a treatment for multiple myeloma. A combination of Revlimid and low-dose dexamethasone significantly improved overall survival and progression-free survival rates, leading some experts to conclude that the treatment probably now will become the new standard of care for the disease. Credit Suisse ups its price target from $165 to $210. The consensus target for the stock is $178. Celgene closed on Tuesday at $170.77.
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Gilead Sciences Inc. (GILD) makes the Credit Suisse list for 2014. With approval of its hepatitis C drug Sovaldi, the company is entering a very lucrative and growing market. Acquired when Celgene bought Pharmasset in November of 2011, the drug is an oral nucleotide polymerase inhibitor that interferes with the life cycle of the hepatitis C virus and suppresses its replication. Credit Suisse raise the price target on the stock to $110 from $90. The consensus price target is lower at $85. Gilead ended trading Tuesday at $72.81.
Regeneron Pharmaceuticals Inc. (REGN) stays on the top of the list at Credit Suisse for 2014. With treatments for everything from macular degeneration to colorectal cancer, the company continues to exploit an extraordinary pipeline. The company is viewed by Credit Suisse as a leading candidate to be one the next generation biotech large cap leaders. The firm has placed a $340 price target on the stock. The consensus is at $339.50. Regeneron closed Tuesday at $277.50.
Medivation Inc. (MDVN) makes the list of preferred names to buy for 2014. Medivation and Astellas just initiated a Phase II trial for Xtandi as a prospective treatment for ER+ (estrogen receptor positive), PgR+ (progesterone receptor positive) and HER2 (human epidermal growth factor receptor) normal breast cancer. The new study will test Xtandi, which is best known as one of the three biggest treatments for metastatic prostate cancer, along with Johnson & Johnson's Zytiga and Dendreon's Provenge, on a group of 240 postmenopausal women who have received no more than one prior chemotherapy treatment and one prior hormonal treatment. The Credit Suisse price target for the stock is $80, while the consensus is at $71. Medivation closed Tuesday at $61.25.
Endocyte Inc. (NASDAQ:EYCT) is a small cap name that could have big returns for investors. The company develops targeted therapies for the treatment of cancer and inflammatory diseases. The company uses its proprietary technology to create novel small molecule drug conjugates and companion imaging diagnostics. With three pivotal trials and regulatory events in 2014, the company could be poised for a big year. The Credit Suisse target price for the stock is $24. The consensus is slightly lower at $21. Endocyte closed Tuesday at $10.38, so a trade to the target could be a gain of more than 100% for shareholders.
When investors look at the huge gains that biotech has made over the past three years, it is natural to be skeptical about another year of outperformance. However, as we pointed out in some of the stock summaries, based on forward earnings, many of these top stocks to buy are not overvalued. As we have stressed, midterm election years can be volatile for the stock market. Investors may want to wait for a correction before adding new capital to some of these top names.
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