
The Real Story Behind Biotech's Plunge and How to Profit
NEW YORK (TheStreet) -- The biotechnology sector has taken a big dive in recent weeks, mostly for reasons that have more to do with political posturing than with industry fundamentals.
Let's examine why biotech's plummet happened -- and explore two growth-and-income stocks that are poised to soar because of it. One company is a "Dividend Aristocrat" that has raised dividends for 42 years in a row.
As the main proxy for the sector, the Nasdaq Biotechnology Index has fallen roughly 23% from its all-time high this year. As for the industry bellwethers, Pfizer (PFE) - Get Report is roughly 9% of its year-to-date high; Bristol-Myers Squibb Co. (BMY) - Get Report is off 13%; and Merck & Co. (MRK) - Get Report is off 19%.
Biotech short sellers are having more fun than a tornado in a trailer park. Let's take a closer look at the reasons behind Biotech's Big Plunge, and how you can leverage it for growth and income. The biotech bets below also are good values now.
Biotech's plummet started in late September, when presidential candidate Hillary Clinton posted a tweet that lambasted Turing Pharmaceuticals AG for its intention to jack-up the price of its specialty drug Daraprim from $13.50 to $750 per pill. Liberal Democrats on Capitol Hill followed suit with howls of protest.
Daraprim is a prescription medication that contains pyrimethamine for the treatment of acute malaria. It's also used to treat infections in AIDS patients.
Turing has since backtracked on its price hike, but the political firestorm shows no signs of abating soon. Just this week, the New York state attorney general's office announced that it is investigating whether Turing illegally restricted the drug's access.
In the midst of all this sturm and drang over drugs, the biotech sector has gotten clobbered and remains in the doldrums.
But whereas the sector's slump is causing biotech investors to pull out their hair, you should be licking your chops at this rare buying opportunity.
A Duo of Bargain Biotechs
Israel-based Teva Pharmaceuticals Industries Ltd. (TEVA) - Get Report is the world's biggest manufacturer and marketer of generic drugs. The company also develops patented biologic treatments, which are derived from humans, animals or microorganisms. Biologics can be composed of proteins, sugars, or living cells and tissues.
Biologic drugs are crucial in cancer research and treatment today, but many have either already lost or stand on the verge of losing patent protection. This is paving the way for "biosimilars," which are generic, less expensive copies of biologics.
With a market cap of more than $50 billion, Teva stands in the forefront of biosimilar research and development. The company is now readying several new gene-based biosimilar drugs for market and is on the cusp of dominating this space.
Teva also owns a global patent portfolio of more than 1,000 molecules. The company's biggest selling products include Copaxone for the treatment of multiple sclerosis; Provigil and Nuvigil for narcolepsy and other sleep disorders; and Azilect for Parkinson's disease.
The company's trailing 12-month price-to-earnings ratio is only 20, compared with 29.1 for the drug manufacturing industry as a whole. The company's dividend yield of 2.3% is a sweetener.
Chicago-based Abbott Laboratories (ABT) - Get Report is on the list of "Dividend Aristocrats," long considered a gold standard for dividend-producing stocks.
To earn the honored title of Dividend Aristocrat, a company must typically have raised dividends for at least 25 years. More precisely, the company needs to have a managed dividend policy that increased its dividend every year for those 25 years.
Abbott consistently makes S&P's list of Dividend Aristocrats and 2015 was no exception. With a market cap of $61.3 billion, Abbott serves customers in more than 150 countries and employs approximately 70,000 people.
The company operates across four business segments: Branded Generics, Medical Devices, Diagnostics and Nutrition. These businesses provide a diversified customer base and payer mix.
The company's drug portfolio includes Humira, for rheumatoid arthritis, psoriatic arthritis, Crohn's disease, and psoriasis; Norvir, for HIV; Depakote, an anticonvulsant; and Synthroid, a synthetic thyroid hormone.
Abbott also offers a wide range of medical devices and diagnostic tests used worldwide by doctor's offices, hospitals, laboratories, and blood banks to diagnose, monitor and treat diseases such as cancer, HIV, hepatitis, heart failure and metabolic disorders.
Abbott's trailing price-to-earnings now stands at 13.8 and the annual yield on the dividend is 2.3%. Abbott's stock is now poised for outsized growth, as it taps into some of the health sector's biggest opportunities. This is a stock that every value investor should love.
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John Persinos is an editor and investment analyst at Investing Daily. At the time of publication, the author held no positions in the stocks mentioned.









