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Celgene to Rise Like a Phoenix: Opinion

Stocks in this article: CELGBMYPFE

When a well-managed, high-growth company with a good balance sheet and superior margins comes in at today's prices and associated metrics, it's typically just a matter of time before there's a snap-back effect. Currently, Celgene carries little headline risk, the underlying story line remains sound and the fundamentals are good.

Value investors seek such opportunities and there's not too many looking like this in today's market. Celgene isn't a one-trick biotech pony, either. The company has a core stable of medications, including Revlimid and Abraxane, that generate real cash in the here and now. On tap are at least 130 compounds and drugs planned or already under way for Phase II and Phase III clinical trials.

Here's more perspective: Why would a large-cap biotech company sporting a sustained 31% growth rate trade at roughly the same P/E ratio as compatriot Big Pharma companies like Bristol-Myers (BMY) or Pfizer (PFE)? These drug manufacturers are growing earnings in the mid-single digits. Value investors like disconnects just like this, and the Celgene story has rounded into shape as one.

The Last Piece of the Puzzle

Aforementioned data points aside, the shooting isn't over until the recent bouts of selling have subsided and the shares begin to catch a bid. Fortuitously, this may have started right before this week's upcoming earnings announcement.

Between the weeks of Feb. 17 and April 7, Celgene's weekly chart logged eight consecutive weeks of ever-declining stock prices on ever-increasing volume. However, last week the pattern broke: The shares rallied green on average volume. Seller fatigue may have set in.

We've started this week on a positive note, the shares moving north of $145 for the first time in two weeks. A good earnings report coupled with a continued technical rebound could bring in buyers from both the value and growth camps, spelling a share price uplift that may make everyone happy.

Note: Please do you own careful due diligence before making any investment. This article is not a recommendation to buy or sell any securities. Good luck on all your 2014 investments.

At the time of publication, Merola was long CELG, although positions may change at any time.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.


It is important to do you own careful due diligence before making any investment. My articles are for information purposes only, and are not a recommendation to buy or sell any securities. Good luck on all your 2014 investments. Ray Merola has over 30 years' practical investment experience. Ray is a "buy and homework" investor, generally seeking securities that trade below fair value, then holding until he believes price and earnings indicate limited future upside potential. Mr. Merola favors stocks of well-managed companies that possess a good balance sheet, generate real cash, own a strong franchise, and are shareholder-friendly. He prefers stocks that pay growing dividends. Ray uses options to generate additional income or hedge a position. Mr. Merola is an individual investor with a passion for learning and writing about stocks.
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