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Ten of our top stocks to invest in have year-to-date gains of at least 19.6% – soaring past the Dow's 2.2% gain in 2015.
Topping that list is Novavax Inc. (Nasdaq: NVAX), up 57% this year. We still like this clinical stage biotech. Long-term gains for NVAX will be strong – but today is not the best time to buy this one. It's showing signs it could pull back in the near-term. That's common for small-cap biotechs.
But just behind Novavax in our rankings is another, more stable biotech stock. It boasts promising sales growth, a healthy balance sheet, and less volatility than NVAX.
This top stock to invest in is Lannett Co. Inc. (NYSE: LCI). Lannett is a generic drugmaker. When patents expire on brand-name drugs, Lannett, among many other generics, produces those same drugs under a generic label.
Generics have an advantage in that they don't have to burn up a lot of cash in the R&D phase. According to Forbes, on average a new drug costs $4 billion to make, with that tab sometimes reaching as high as $11 billion.
Once one of these pharmaceutical companies secures the patent, they generally hold on to it for about 20 years. But the clinical stages can be lengthy. It can often leave those companies with only about 10 years to market and sell them under patent, according to Money Morning Bioscience Investment Specialist Ernie Tremblay.
Lannett is a particularly interesting player right now because it's toeing a middle ground in the industry. It's small, but not so small that it will be swallowed by larger players. Though it's not so big – like Teva Pharmaceuticals Industries Ltd. (NYSE ADR: TEVA), Novartis AG (NYSE ADR: NVS), and Mylan Inc. (Nasdaq: MYL) – that it is has a limited ceiling.
Lannett stock is up 52% this year, which is just a glimpse at what's ahead.
Lannett stock was growing aggressively between 2013 and mid-2014. In 2013 alone, the LCI stock price swelled 453.5%, from $5.98 to $33.10. And for the first half of 2014, it grew another 55%, to $51.19.
Then a lawsuit – that was eventually dropped – took the wheels out of this hot biotech. LCI shares crashed 17.1% on July 16 when the company announced a class action lawsuit alleging that the company was "improperly fixing and controlling prices of digoxin in violation of Connecticut anti-trust laws." Digoxin is a congestive heart failure medicine used to treat atrial fibrillation – an irregular, rapid heartbeat. It made up about 20% of 2014 revenue.
But the lawsuit was dropped in September. The case against Lannett was considered to be filed without merit.
From there Lannett took off again.
Lannett has grown revenue quarter-to-quarter for nine straight quarters. In its most recent filing, revenue grew year-to-year by 70.5%. Earnings-per-share totaled $1.21, up from $0.46 in the year-ago quarter – a 163% increase.
For LCI, it reports annual earnings in the second quarter, so we'll see how it did over this past year in its next release in May. The company expects sales of between $395 million and $405 million, up from previous company guidance of between $370 million and $390 million. Analysts expect sales of $406.6 million. Last year, LCI totaled sales of $277.8 million.
From 2013 to 2014, LCI saw strong revenue growth in its thyroid medication. These drug sales were up 86.8% to $102.2 million.
Digoxin, the drug subject to litigation, saw sales growth up 367.5% to $54.7 million.
What's most encouraging in LCI is its growth in cash flow.
Its free cash flow – that is, net profits not tied up in paying for capital expenditure – was up to $36.4 million. In 2013, it was $14.9 million in the red. At current levels, its free cash flow is 31.7% of revenue. The higher that ratio, the better that is for shareholders. That's because it essentially means that 31.7% of Lannett's revenue could be paid out to LCI shareholders.
To put that in perspective, Warren Buffett looks for a ratio of 5%. LCI beats that many times over.
It's important to note that LCI will need to do this consistently. And while LCI doesn't pay a dividend, several quarters of similar cash flows could prompt this fast-growing generic drugmaker to reward its shareholders in some way.
To see where Lannett fits in our top stocks to invest in for 2015, check out this chart – and keep reading to get our most recent list of top stocks to buy now: