Biotech Bets: Gilead and Illumina

06/19/2015 8:00 am EST


Michael Cintolo

Vice President of Investments and Chief Analyst, Cabot Heritage Corporation

We're sticking with the game plan of holding some cash and being choosy on the buy side; among our new recommendations are these two leading biotechnology stocks, suggests growth stock expert Mike Cintolo, editor of Cabot Top Ten Trader.

Biotechs continue to thrive and none of them are growing revenue and earnings faster than Gilead (GILD). Sovaldi, Gilead’s groundbreaking hepatitis C drug, has been the primary catalyst, doing $10.2 billion in sales on its own in 2014.

That helped fuel a near-quadrupling of the company’s earnings per share last year ($2.04 to $8.09) and caused overall sales to more than double.

So far in 2015, Gilead’s growth is showing little sign of slowing down: EPS doubled in the first quarter and revenues increased 52%.

But Gilead’s success is not just about bottom- and top-line growth. Its deep pipeline of cancer drugs is also attracting investors. The company currently has 12 products in Phase 2 trials and seven products in Phase 3 trials.

It already had one cancer drug, Zydelig (for patients with relapsed chronic lymphocytic leukemia), approved for commercial use last summer, perhaps paving the way for others.

Further, Gilead has enough cash on hand ($14.5 billion) to potentially buy up other promising clinical-stage treatments, as well as repurchase a ton of shares ($3 billion in the first quarter alone) and pay a small dividend (1.5% annually).

Few, if any, biotech companies feature a combination of growing current products and promising clinical-stage products quite like Gilead’s.

Illumina (ILMN) makes gene sequencers that will never be seen or touched by the vast majority of people, but they’re having as revolutionary an impact on our everyday lives as any product we know.

These sequencers speed up and improve genetic analysis and are key drivers of many breakthrough medications being developed today.

And Illumina dominates the market for gene sequences (including high-, mid-, and low-end versions.

This has led to an ever-growing base of business, which, in turn, drives ever-higher recurring revenues from consumable products used when running the tests. In the first quarter, 57% of revenues came from consumables.

Earnings estimates are just OK, but this company has a history of topping expectations; first quarter earnings of 91 cents per share topped estimates by a whopping 19 cents.

Beyond the quarter-to-quarter numbers, the big idea here is that the genetics industry is still in its youth and Illumina likely has many years of rapid growth ahead of it, assuming management continues to pull the right levers. Given its track record, there’s every reason to believe they will. We like it.

Subscribe to Cabot Top Ten Trader here…

More from

Drug Royalties Boost Ligand

Gilead: Low PEG, High Profits

Incyte: Best-in-Class Cancer Play

  By clicking submit, you agree to our privacy policy & terms of service.

Related Articles on STOCKS