Incyte Corporation (INCY)

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Biotech Pullback Makes Bargains Out Of Alexion, Flexion, Clovis, Tesaro And Incyte

Ken Kam , CONTRIBUTOR

Opinions expressed by Forbes Contributors are their own.

the best time to invest in biotech stocks is after the short-term speculators have sold.

After a very strong year, the biotech sector has suffered an 8% pullback over the past five weeks. Todd Hagopian, whose biotech portfolio is up 38% this year, believes that the recent pullback has created bargains in Alexion, Flexion, Clovis, Tesaro and Incyte.

Ken Kam: Your fund is up 38% this year, why do you think there is more room to grow in the sector this year?

Todd Hagopian: While the major biotechs have seen a relatively small pullback, some of the clinical stage, or one-drug companies, have pulled back extremely hard as the acquisition season has seemingly ended.

Nothing in the industry has changed, there will still be less regulation, more investment, and more innovation going forward.

The acquisitions will pick back up, and these premiums that have dissipated over the past couple months will return. This portion of the biotech sector is opening up some great bargains at the moment.


Kam: What did you look for when identifying your five biggest bargains in the sector for this article?

Hagopian: I looked at five sets of criteria:

Is the stock at least 20% off of its high?
Is the stock at least 30% off of their average target price?
Was there a revenue-based justification for pull-back?
Is an acquisition, or rumors of one, likely in the next year?
Is there is at least 50% growth potential in the next year?
Kam: Tell me about the five stocks you picked as this season’s biggest bargains?

Hagopian: The companies I chose are Alexion Pharmaceuticals (ALXN), Flexion Therapeutics (FLXN), Clovis Oncology (CLVS), Tesaro Inc (TSRO), and Incyte Corporation (INCY).

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Incyte

The stock is down based on buyout rumors that didn't materialize. However, this stock is part of the IDO inhibitor class, which is another growth area in immunotherapy. On top of that, INCY already has revenue of over $1B/year, offering immediate benefits to potential acquirers, beyond their valuable immunotherapy pipeline.

The bottom line is that this stock will likely be one of the next major acquisition targets in the industry, and should see $150 again over the next 12 months, offering a potential 50% return over that time period.

Kam: How are you using these five highlighted stocks in your portfolio?

Hagopian: As Biotechs have slipped over the past couple of months, I have retooled my portfolios to take advantage of what I view are the biggest bargains in the sector. These five stocks will make up approximately 35% to 45% of my portfolio moving forward.

My Take: Often, the best time to invest in biotech stocks is after the short-term speculators have sold. In the past five weeks, there have been no clinical failures with these five companies. What has changed is that the prospects for a large, quick, capital gain from a buyout decreased. Todd is confident that takeover speculation will be back and is using the pullback to buy these five stocks. I agree that the pullback has created a good entry point for those with investment horizons of more than one year.

Investing in biotech requires hours of research, combing through clinical trial data, looking at competitive drugs, analyzing the analysts, and tracking the ongoing catalysts of the stocks involved.

Todd has shown us how a good manager can apply intelligence, skill, and diligence so the outcome is not just a game of chance. He started his Biotech fund at Marketocracy in March, 2011. Since then, his returns have averaged 26.58%, which compares nicely to the S&P 500’s 12.87% return over the same period. Year-to-date, Todd’s Biotech fund is up 38.00%, versus 16.91% for the S&P, and 17.03% for the Nasdaq iShares Biotech ETF (IBB). Over the past five years, Todd has outperformed the #1 equity mutual fund manager in Morningstar's database.

Todd's Biotech fund is not a mutual fund. It is an investment option for clients of our separately managed account program. Here is Todd’s track record. For a full review of his 20+ articles on the market, please visit his profile. For information about investing with Todd, click here.
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https://www.forbes.com/sites/kenkam/2017/11/28/biotech-pullback-makes-bargains-out-of-alexion-flexion-clovis-tesaro-and-incyte/?utm_source=yahoo&utm_medium=partner&utm_campaign=yahootix&partner=yahootix&yptr=yahoo#714ac7ed333d

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