Health care in general is transforming due to an aging population, the Affordable Care Act and new technology. The demand for blockbuster drugs among investors and cures for diseases among patients and doctors has never been higher. The iShares Nasdaq Biotechnology ETF (IBB) is up roughly 20% for the year. But not all biotech stocks are smart buys.
The companies listed are all large-cap biotech companies rated "Sell" by TheStreet Ratings. When you're done be sure to check out which big pharmaceutical companies to buy in the wake of Johnson & Johnson's (JNJ) announcement it will start developing 10 new drugs by 2019.
TheStreet Ratings, TheStreet's proprietary ratings tool, projects a stock's total return potential over a 12-month period including both price appreciation and dividends. Based on 32 major data points, 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 equities market returns, future interest rates, implied industry outlook and forecasted 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.
Note: Year-to-date returns are based on May 22, 2015 closing prices.ALNY data by YCharts
1. Alnylam Pharmaceuticals (ALNY)
Market Cap: $10.5 billion
Year-to-date return: 28.7%
Rating: Sell, D
Alnylam Pharmaceuticals, Inc., a biopharmaceutical company, discovers, develops, and commercializes novel therapeutics based on RNA interference.
TheStreet said: "We rate ALNYLAM PHARMACEUTICALS INC (ALNY) a SELL. This is driven by a number of negative factors, 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 area that we feel has been the company's primary weakness has been its disappointing return on equity."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- The company's current return on equity greatly increased when compared to its ROE from the same quarter one year prior. This is a signal of significant strength within the corporation. Compared to other companies in the Biotechnology industry and the overall market, ALNYLAM PHARMACEUTICALS INC's return on equity significantly trails that of both the industry average and the S&P 500.
- ALNYLAM PHARMACEUTICALS INC reported significant earnings per share improvement in the most recent quarter compared to the same quarter a year ago. This company has reported somewhat volatile earnings recently. But, we feel it is poised for EPS growth in the coming year. During the past fiscal year, ALNYLAM PHARMACEUTICALS INC reported poor results of -$5.14 versus -$1.43 in the prior year. This year, the market expects an improvement in earnings (-$2.99 versus -$5.14).
- The company, on the basis of net income growth from the same quarter one year ago, has significantly outperformed against the S&P 500 and exceeded that of the Biotechnology industry average. The net income increased by 79.8% when compared to the same quarter one year prior, rising from -$250.94 million to -$50.78 million.
- This stock has increased by 104.35% over the past year, outperforming the rise in the S&P 500 Index during the same period. Regarding the future course of this stock, we feel that the risks involved in investing in ALNY do not compensate for any future upside potential, despite the fact that it has seen nice gains over the past 12 months.
- ALNY's very impressive revenue growth greatly exceeded the industry average of 19.9%. Since the same quarter one year prior, revenues leaped by 124.0%. Growth in the company's revenue appears to have helped boost the earnings per share.
- You can view the full analysis from the report here: ALNY Ratings Report