Curing Cancer: Which Biotech Will Be First?

06/20/2016 7:00 am EST

Focus: STOCKS

Charles Carlson

Editor, DRIP Investor

Healthcare stocks as a group have underperformed this year, with biotechnology stocks leading the way downward. However, within the health-care sector there are pockets of strength states Chuck Carlson, editor of DRIP Investor.

Among the pharmaceutical stocks, Bristol-Myers Squibb (BMY) -- a long-time recommendation -- has done well and is trading around its highest level ever. A stronghold in emerging cancer treatments is driving the stock.

Bristol-Myers has been a big spender on research and development — R&D totaled $4 billion in 2015, or approximately 25% of revenue. That spending has paid off in exciting new products and well-stocked product pipeline.

A big driver of interest in these shares is the company’s Opdivo cancer treatment. The drug is already approved to treat advanced melanoma and certain kidney and lung cancers.

Bristol-Myers is working to expand the uses of this “wonder” drug across additional cancer treatments.

Sales of Opdivo were nearly $1 billion in 2015 and $704 million in the March quarter. Annual Opdivo sales could exceed $4 billion by the end of this decade.

Another drug with a strong growth profile is Eliquis, a blood thinner developed with Pfizer (PFE). Eliquis had sales of more than $730 million in the March quarter, up 106%. Bristol-Myers also appears to be making inroads in hepatitis treatment.

While Bristol-Myers stock has a history of big price swings, its new products and product pipeline should provide for growth well above the industry average.

The stock trades at 28 times low-end guidance for 2016. Viewed in a vacuum, that is not a cheap valuation.

However, it has exposure to some of the most interesting treatments in the huge oncology market, so Wall Street is willing to pay extra for that future growth.

The stock offers a solid growth-and-income play among health-care DRIPs; in fact, Bristol-Myers Squibb offers a direct-purchase plan whereby any investor may buy the first share and every share directly from the company.

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Chuck Carlson, Editor of DRIP Investor

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