Editor's Pick: Originally Published Wednesday, Dec. 23
Biotech stocks are set to outperform in 2015, but there are plenty of large-cap companies in the sector that investors should steer clear of.
The Nasdaq Biotechnology Index, which follows Nasdaq-listed biotech stocks, is up9.5% for the year. The S&P Biotechnology Select Industry Index, which tracks biotech stocks listed on the NYSE, AMEX, Nasdaq and Nasdaq Small Cap exchanges, is up 12%. Meanwhile the S&P 500 is in negative territory for the year.
Investors like to look to biotech stocks because, while risky, the industry has the potential to offer high returns. The stocks tend to be volatile. The list below is of large-cap biotech stocks rated "sell" by TheStreet Ratings, TheStreet's proprietary ratings tool.
TheStreet Ratings uses a quantitative approach to rating over 4,300 stocks to predict return potential for the next year. The model is both objective, using elements such as volatility of past operating revenues, financial strength, and company cash flows, and subjective, including expected equity market returns, future interest rates, implied industry outlook and forecast company earnings.
Buying an S&P 500 stock that TheStreet Ratings rated a buy yielded a 16.56% return in 2014, beating the S&P 500 Total Return Index by 304 basis points. Buying a Russell 2000 stock that TheStreet Ratings rated a buy yielded a 9.5% return in 2014, beating the Russell 2000 index, including dividends reinvested, by 460 basis points last year.
Here's the list of biotech stocks to sell. When you're done check out the best and worst biopharma CEOs of 2015 as well as the essential biotech stocks you need to have in your portfolio for 2016.
Industry: Health Care/Biotechnology
2015 return: 30.3%
Alkermes Public Limited Company
, an integrated biopharmaceutical company, engages in the research, development, and commercialization of pharmaceutical products to address unmet medical needs of patients in various therapeutic areas.
12-Month Revenue Growth: 7%
12-Month Net Income Growth: -199%
12-Month EPS Growth: -187%
TheStreet Said: Recently, TheStreet Ratings objectively rated this stock according to its "risk-adjusted" total return prospect over a 12-month investment horizon. Not based on the news in any given day, the rating may differ from Jim Cramer's view or that of this articles's author. TheStreet Ratings has this to say about the recommendation:
We rate ALKERMES PLC as a Sell with a ratings score of D+. This is driven by a few notable weaknesses, which we believe should have a greater impact than any strengths, and could make it more difficult for investors to achieve positive results compared to most of the stocks we cover. The company's weaknesses can be seen in multiple areas, such as its feeble growth in its earnings per share, deteriorating net income, disappointing return on equity and weak operating cash flow.
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- ALKERMES PLC has experienced a steep decline in earnings per share in the most recent quarter in comparison to its performance from the same quarter a year ago. Earnings per share have declined over the last year. We anticipate that this should continue in the coming year. During the past fiscal year, ALKERMES PLC swung to a loss, reporting -$0.22 versus $0.13 in the prior year. For the next year, the market is expecting a contraction of 77.3% in earnings (-$0.39 versus -$0.22).
- The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Biotechnology industry. The net income has significantly decreased by 102.8% when compared to the same quarter one year ago, falling from -$39.96 million to -$81.02 million.
- Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Biotechnology industry and the overall market, ALKERMES PLC's return on equity significantly trails that of both the industry average and the S&P 500.
- Net operating cash flow has significantly decreased to -$29.45 million or 277.07% when compared to the same quarter last year. In addition, when comparing to the industry average, the firm's growth rate is much lower.
- ALKS, with its decline in revenue, underperformed when compared the industry average of 13.4%. Since the same quarter one year prior, revenues slightly dropped by 4.6%. Weakness in the company's revenue seems to have hurt the bottom line, decreasing earnings per share.
- You can view the full analysis from the report here: ALKS