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In our last conversation, I said the market is greatly oversold so far this year.
I also said I'd get back to you with some of the more exciting bargains I'm seeing out there.
Today I'm keeping my promise.
Here's a list of three life sciences stocks I believe are poised for a big rebound.
Why life sciences?
Because, despite the recent slump, that sector – which includes biotech – offers investors some of the best long-term opportunities for building wealth.
And that means you definitely want biotech stocks in your portfolio, especially now.
The market is already bouncing back.
And that means the three plays I'm going to tell you about are poised to hand investors 69% on average…
The Other "Invisible Hand"
As a longtime tech investor, I generally steer clear of political controversy. I'm too busy hunting down big-gain opportunities from cutting-edge firms.
That doesn't mean I won't take note of political "games" if and when they affect the markets – or my readers.
In my mind, there's no question that politics are at least partly behind biotech's recent oversized losses.
(From Dec. 29 through Feb. 11, the sector lost 22% of its value – nearly double the S&P 500's 12% decline.)
Biotech's recent woes began in September, when Turing Pharmaceuticals raised the price of Daraprim, a 62-year-old anti-infection drug, from $13 a pill to $750. That ignited a firestorm in the halls of Congress, with several members calling for an investigation into why the price of an old drug would rise 5,670% overnight.
Then, in December, word broke that Turing's CEO, the much-reviled Martin Shkreli, planned a sharp increase on another drug he's involved with at a different biotech firm.
It bears noting that the Dow Jones U.S. Biotechnology Index bottomed out on Feb. 12, barely a week after Shkreli testified before Congress about the infamous drug increase (by "taking the fifth"). It's gained more than 6% since then.
That's great news for us because biotech and other life sciences firms offer investors excellent long-term potential. These are companies that are coming up with the blockbuster treatments that will save millions of lives and bring in billions of dollars in new sales.
Screening for Profits
Some 76.5 million Americans were born between 1945 and 1965.
Today, those graying baby boomers make up a huge market for new drugs and medical procedures. What's more, they'll continue to do so for at least the next 20 years.
That fact virtually ensures that demographics alone will provide a brisk tailwind to the healthcare industry for decades to come.
With that and the recent rout in mind, I've run a "deep screen" of the sector for some bargains based on relative price ratios.
You see, one way to find a bargain price is to focus on the PEG ratio – which looks at a company's price to earnings (P/E) ratio in the context of its growth prospects.
You don't need to master the technical details, but you should remember that a PEG of 1.00 indicates that a given stock is fairly priced. Anything below 1.00 means the stock is trading at a discount.
To screen life sciences stocks for those with big upside left, I turned to the professional trading platform at the heart of my premium Radical Technology Profits service, where I use it to find market-crushing returns.
To give you some idea of how well my system performs, just yesterday we took 36% gains on half of a small-cap satellite tech leader that we had held for barely four months. That gave us annualized returns of more than 100% in a sideways market.
Take a look at these biotech gems I've uncovered and listed in descending order of bargain prices.
Biotech Stock Bargain No. 1: Celgene Corp.
Wall Street has been concerned of late that growth for Celgene Corp.'s (Nasdaq CELG) breakout cancer drug Revlimid has slowed. But sales are still expected to be at least 15% higher this year than in 2015.
The company also plans to release several new drugs by the end of the decade, reducing its reliance on Revlimid. Abraxane, a compound for pancreatic, breast, and lung cancers, saw sales grow 14% for the fourth quarter, and Celgene management expects an even bigger sales increase this year.
Year over year, sales ramped up some 24% to $2.53 billion, and per-share earnings gained 17% to $1.18.
The stock opened today at $104.43, giving it a market cap of $82.4 billion. But here's what's key:
Celgene has a PEG ratio of 0.70, meaning it's priced 30% below fair value. It has a forward P/E of 14.5, about a 9% discount from the overall market.
Analysts have a median consensus estimate of $144 on Celgene and a high-water estimate of $163. So we're looking at one-year gains between 38% and 56%.
Biotech Stock Bargain No. 2: Mylan NV
Ordinarily, I don't pay a lot of attention to stocks favored by hedge fund managers. But this time I think it pays to do so.
John Paulson, the man who made billions shorting the housing industry before the crash, has targeted Mylan NV (Nasdaq: MYL) as a key investment. His Paulson & Co. healthcare fund owns 22.9 million shares of Mylan, with an estimated value of $1.2 billion.
Mylan is a specialty drug firm with a blend of some 1,400 generic and branded products. It accounts for one out of every 13 prescriptions filled each year in the United States.
The stock opened today at $46.70, giving it a market cap of $23.31 billion.
Analysts have a high-water price of $76 on the stock, which would mean a 63% pop in one year. I think that's probably conservative.
After all, it's priced about one-third below fair value with a PEG ratio of 0.67. The stock also has a forward P/E of just 8.5, an 85% discount from the S&P 500.
Biotech Stock Bargain No. 3: Jazz Pharmaceuticals
In such a choppy market, you're always sort of on thin ice when it comes to forecasts.
That said, I'm going to venture out onto the floe…
Jazz Pharmaceuticals Plc. (Nasdaq: JAZZ) reports earnings today, and I believe we'll once again see a strong performance.
Specializing in narcolepsy and armed with the drug Xyrem, Jazz should post double-digit gains for both sales and earnings. Bear in mind that the consensus among analysts is for the company to grow earnings by 16% a year over the next five years, meaning they should double over the period.
The company also is running multiple phase 3 trials for JZP-110 to treat patients with excessive daytime sleepiness due to a form of sleep apnea that covers about 85% of the 12 million Americans who have the condition.
The stock trades at $124.96, giving it a market cap of $7.71 billion. It has a PEG ratio of 0.43, meaning it trades at a more than 55% discount from fair value. It also has a forward P/E of 11, a 43% discount from the S&P 500.
Analysts have a median price of $178 and a high price of $230 on the stock. That means one-year profits between 45% and 88%.
Don't be fooled by the high "sticker price" that each of these stocks carries. As you've just seen, each is cheap on a relative basis.
On average, these three plays could hand you average one-year gains of around 69%.
Not too shabby for a beaten-down sector.
Meantime, I hope you will check back here often, as I am continuing to uncover more tech bargains in an oversold market.
As soon as I find more, I'll let you know.
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About the Author
Michael A. Robinson is a 36-year Silicon Valley veteran and one of the top technology financial analysts working today. That's because, as a consultant, senior adviser, and board member for Silicon Valley venture capital firms, Michael enjoys privileged access to pioneering CEOs, scientists, and high-profile players. And he brings this entire world of Silicon Valley "insiders" right to you...
- He was one of five people involved in early meetings for the $160 billion "cloud" computing phenomenon.
- He was there as Lee Iacocca and Roger Smith, the CEOs of Chrysler and GM, led the robotics revolution that saved the U.S. automotive industry.
- As cyber-security was becoming a focus of national security, Michael was with Dave DeWalt, the CEO of McAfee, right before Intel acquired his company for $7.8 billion.
This all means the entire world is constantly seeking Michael's insight.
In addition to being a regular guest and panelist on CNBC and Fox Business, he is also a Pulitzer Prize-nominated writer and reporter. His first book Overdrawn: The Bailout of American Savings warned people about the coming financial collapse - years before the word "bailout" became a household word.
Silicon Valley defense publications vie for his analysis. He's worked for Defense Media Network and Signal Magazine, as well as The New York Times, American Enterprise, and The Wall Street Journal.
Michael is 100% independent and receives absolutely no compensation from companies he writes about. His ideas are completely his own.
So, it probably goes without saying that you won't ever be left in the dark about breaking innovations, ahead-of-their-time technologies, and breakout companies on the cusp of changing the world once you join this world.