Tracy and Navellier: Biotech Bets

06/27/2003 12:00 am EST

Focus:

Louis Navellier

Editor, Blue Chip Growth and Emerging Growth

"Stocks remain grossly undervalued relative to Treasury bonds," notes Louis Navellier, money manager, author, and editor of the MPT Review and The Blue Chip Growth Letter. "According to valuation models, the S&P 500 is now over 45% undervalued relative to the ten-year Treasury bond. Meanwhile, bargain hunting on dips is just another sign that the stock market is benefiting from relentless buying pressure. The biotechs have been especially strong, so I've added two to our model portfolios.

"Genzyme (GENZ NASDAQ) is an aggressive buy up to $54 and Gilead Sciences (GILD NASDAQ) is a moderate buy up to $60. Genzyme and Gilead are both very profitable and benefiting from strong sales and extremely healthy operating margins. Enzyme specializes in ‘orphan drugs’ that treat just a few thousand patients with rare diseases. Genzyme is benefiting from aggressive US government funding and tax incentives to help develop orphan drugs to treat fewer than 200,000 patients. Once the FDA approves an orphan drug, no other drug company can market a competing drug for seven years, which allows Genzyme to operate with extremely high profit margins. Gilead Sciences actually has even stronger sales and fatter operating margins than Genzyme, so I expect nothing less than spectacular earnings results in the upcoming quarters."

Meanwhile, Gilead is also a buy recommendation from Paul Tracy, editor of The StreetAuthority Market Advisor. He notes, "Gilead derives the majority of its revenues from several patented drugs it has brought to market in recent years. These include AmBisome for fungal infections, Viread for HIV treatment, Hespera for hepatitis B and the influenza vaccine, Tamiflu. Although its revenues and earnings could fluctuate as a result of competition and uncertainty over few drug approvals, Gilead is quickly becoming a leading player in the sector and its shares should benefit from a tremendous rebound in biotechnology valuation levels this year. I’m adding the shares to our aggressive portfolio with a ‘Buy’ rating and a 12-month price target of $70."

 

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