The market and economy face several unique and challenging threats as we enter the second half of the year.
The market’s primary concern is now recession rather than inflation. This is evident by longer-term rates turning lower and recent weakness in commodity prices. We also see this shift reflected in the Fed funds futures market which now shows the expectation of 3 rate cuts in the first half of 2023 whereas 6 weeks ago, the market was looking for 3 rate hikes in the first half of 2023.
This environment is tricky for investors because they can’t find safety in inflation-proof vehicles, which was a winning strategy in the first half. Instead, investors should look for stocks that are insulated from economic and monetary shocks and have strong, secular growth rates. Healthcare, pharmaceutical, and biotech stocks are an example of such a group.
In this sector, investors should look at companies with attractive valuations and improvements in operations that may have been overlooked during the first half of the year. In today’s article, I want to talk about Amgen (AMGN), and why it’s a great long-term buy at current levels.
Company Background
AMGN is one of the original biotech companies and is a pioneer in the biologics space. Even today, 80% of the company’s revenues come from biologic products. Currently, its top 3 selling drugs are Enbrel for inflammatory diseases, Prolia for osteoporosis, and Neulasta which reduces infection risk in chemotherapy patients.
These 3 drugs accounted for nearly 50% of AMGN’s sales last year with 74% of sales coming from North America. This concentration is certainly a risk and one factor in the stock’s recent underperformance. However, the company has been seeing strong growth in international sales. It also has been aggressive in making acquisitions to keep its pipeline well-stocked.
GARP
AMGN is a well-diversified biotech company with a strong lineup of products in its pipeline, and a management team with a track record of bringing profitable drugs through the market through acquisitions or internal efforts.
Despite these attributes and the favorable sector dynamics listed above, the stock is quite cheap with a forward P/E of 13 and an above-average dividend yield of 3.1%.
Last year, AMGN had EPS of $17.1 and revenue of $26 billion. This year, analysts are forecasting a modest improvement to $17.65 in EPS and $26.2 billion in revenue. It also has 22% profit margins which are nearly twice that of the S&P 500.
POWR Ratings
AMGN is also a standout in terms of the POWR Ratings with an overall grade of B which equates to a Buy. B-rated stocks have posted an average annual performance of 20.1% which outpaces the S&P 500’s average 8% gain.
In terms of its component grades, AMGN has an A for Quality which is consistent with its strong balance sheet, low debt, and well-regarded management team.
What To Do Next?
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AMGN shares were trading at $249.44 per share on Friday afternoon, up $2.02 (+0.82%). Year-to-date, AMGN has gained 12.73%, versus a -17.66% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.
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