Jim Simons (Trades, Portfolio)’ Rennessaince Technologies owns a multitude of stocks. Celgene Corp (CELG, Financial) is just another in a long list. Renaissance Technologies owns 2,570,838 million shares, good for 0.25% of the firm's public equity portfolio, but it probably deserves a larger position in your portfolio.
I don’t usually look at biotech or health care stocks often, but when a company that has produced consistent growth has its stock drop 37% in a year, it’s time to learn more.
Celgene is a biotech with a great story and long history dating back to 1986 of generating profits by fighting diseases that typically affect older people. Guess what we all do? Age! And, we all want to live longer too.
The company has drugs that treat myeloma, Thalomid and Pomalyst, which is commonly seen in people above the age of 60. It has a drug to treat T-cell lymphoma called Istodax, and the cancer drug Abraxane. Recent acquisitions of Juno and Impact have brought additional drugs into Celgene's blood cancer pipeline.
All told, the company generated $2.8 billion in net income on $13.5 billion in revenue at gross margins of 96.4% (not a typo), while spending just $7.1 billion in R&D. For a creator of cures, that’s fiscally responsible. These figures went up considerably over the last decade, as the need for Celgene’s drugs became greater.
Celgene's multiple myeloma therapy Revlimid remains at the center of the firm's profit stream with $8 billion in sales during 2017, and growth prospects in multiple myeloma are strong. Despite fewer than 200,000 cases in the U.S. a year, the global market could grow to $22 billion by 2021, which Celgene could see $16 billion from.
From a purely financial perspective, the company is set to earn over $8 a share this year and over $10 a share next. So, let’s say you’re a private owner and the business pays you back more than 20% of your investment in less than 18 months. Most would take that, especially when it’s billions of dollars. With return on equity and invested capital both consistently in the 20% range, the company obviously knows what it’s doing. And, when it does create or buy a blockbuster drug, the profit stream lasts a long time.
If you want to wait and see what happens for the next month, you could also write put option contracts on the stock at $85 and collect over 3.5%. However, if Celgene bounces quickly, you will miss out on some profit.
Other guru investors like David Rolfe (Trades, Portfolio) (924,542 shares), Joel Greenblatt (Trades, Portfolio) (388,970 shares) and Ray Dalio (Trades, Portfolio) (432,364 shares) all have small positions in Celgene.
Disclosure: I am not long/short Celgene, but may trade options in the next 72 hours.
