Taking the next step in reducing U.S. prescription drug prices, House Speaker Nancy Pelosi unveiled the Democrats’ latest plan, which will allow Medicare to negotiate lower prices on as many as 250 of the most expensive drugs and apply those discounts to private health care plans, on Thursday.
As a result, investors may find value opportunities among pharmaceutical companies that outperformed the Standard & Poor’s 500 Index by at least 5% over the past 12 months. As of Sept. 20, the GuruFocus All-in-One Screener found several stocks that have a market cap over $5 billion and had a higher return relative to the index for the period. It also looked for companies with a business predictability rank of at least one out of five stars and a price-earnings ratio below 15.
Stocks that met these criteria were Celgene Corp. (CELG, Financial), Exelixis Inc. (EXEL, Financial) and Eli Lilly and Co. (LLY, Financial). The S&P 500 has posted a return of roughly 19.37% so far this year.
Celgene
Outperforming the index by approximately 13.63% over the past 12 months, Celgene has a $70.51 billion market cap; its shares were trading around $99.47 on Friday with a price-earnings ratio of 13.63, a price-book ratio of 6.93 and a price-sales ratio of 4.38.
The Peter Lynch chart suggests the stock is trading near its fair value.
The Summit, New Jersey-based biopharmaceutical company, which focuses on treatments for cancer and inflammatory disorders, has a GuruFocus financial strength rating of 5.1 out of 10. Boosted by adequate interest coverage, the Altman Z-Score of 3.46 indicates the company is in good financial standing.
Celgene’s profitability and growth fared much better, scoring a 10 out of 10 rating on the back of solid margins and returns that outperform competitors, a high Piotroski F-Score of 8, which implies operating conditions are strong, and a one-star business predictability rank. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% per annum over a 10-year period.
Of the gurus invested in Celgene, Jim Simons (Trades, Portfolio)’ Renaissance Technologies has the largest stake with 1.26% of outstanding shares. David Abrams (Trades, Portfolio), John Paulson (Trades, Portfolio), Paul Tudor Jones (Trades, Portfolio), George Soros (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Pioneer Investments (Trades, Portfolio), David Rolfe (Trades, Portfolio), Mario Gabelli (Trades, Portfolio), the Eaton Vance Worldwide Health Sciences Fund (Trades, Portfolio), Michael Price (Trades, Portfolio), Ronald Muhlenkamp (Trades, Portfolio), John Hussman (Trades, Portfolio), Murray Stahl (Trades, Portfolio) and Mairs and Power (Trades, Portfolio) are also shareholders.
Exelixis
Beating the benchmark by around 9.65% over the past 12 months, Exelixis has a market cap of $5.94 billion; its shares were trading around $19.65 on Friday with a price-earnings ratio of 9.59, a price-book ratio of 3.95and a price-sales ratio of 6.75.
According to the Peter Lynch chart, the stock is undervalued.
Headquartered in Alameda, California, the genomics-based drug manufacturer’s financial strength was rated 8 out of 10 by GuruFocus. Although it has good interest coverage, the Sloan ratio suggests the company has poor earnings quality. The robust Altman Z-Score of 24.07, however, indicates the company is in good financial health despite recording a slowdown in revenue per share growth over the last 12 months.
Exelixis’ profitability and growth scored a 6 out of 10 rating, driven by strong margins and returns, a moderate Piotroski F-Score of 5, which suggests operations are stable, and a one-star business predictability rank.
With 9.93% of outstanding shares, Simons’ firm is the company’s largest guru shareholder. Greenblatt, Pioneer, Jones and Richard Pzena (Trades, Portfolio) also have positions in the stock.
Eli Lilly
Eli Lilly, which has outperformed the S&P 500 by 14.66% over the past 12 months, has a $112.51 billion market cap; its shares were trading around $116.74 on Friday with a price-earnings ratio of 14.7, a price-book ratio of 44.34 and a price-sales ratio of 4.94.
Based on the Peter Lynch chart, the stock appears to be overvalued.
GuruFocus rated the Indianapolis-based pharmaceutical company’s financial strength 4.8 out of 10. Although Eli Lilly has issued approximately $9 billion in new long-term debt over the last three years, it is at a manageable level due to comfortable interest coverage. In addition, the Altman Z-Score of 3.07 suggests it is in good standing financially.
Eli Lilly’s profitability and growth scored a 7 out of 10 rating. In addition to an expanding operating margin, the company is supported by strong returns that outperform a majority of industry peers, a moderate Piotroski F-Score of 6 and a one-star business predictability rank.
PRIMECAP Management (Trades, Portfolio) is the company’s largest guru shareholder with a 4.47% stake. Other top guru investors include the Vanguard Health Care Fund (Trades, Portfolio), Dodge & Cox, Pioneer, Ken Fisher (Trades, Portfolio), Simons’ firm, Grantham, Mairs and Power (Trades, Portfolio), Eaton Vance, Jones, Louis Moore Bacon (Trades, Portfolio), Gabelli, Stahl, Hotchkis & Wiley and Caxton Associates (Trades, Portfolio).
Disclosure: No positions.
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