Our Large Cap Core Positions are Set for Strong Earnings Reports
For the week that just ended on October 9th, we saw the market rebound some from losses over the past few weeks. Equities were buoyed for the week by an approximately 10% rebound in oil as well as stronger prices from other commodities. This lessened the worries about debt levels at mining and exploration companies. It also helped commodity based economies like Brazil. Investors also became more optimistic about seeing no rate hike from the Federal Reserve in 2015 after the previous week’s tepid Jobs Report last Friday.
Value stocks with low price to earnings ratios like those found in the industrial and manufacturing sectors were the prime beneficiaries of the rally. Unfortunately, as the chart to the right shows this enthusiasm did not carry over to the biotech space as major indices in this sector were largely flat on the week. Sentiment continues to remain weak on biotech for the moment. However, it does appear the area is trying to bottom after stepping a toe into bear market territory. Good earnings reports from large cap biotech companies like Gilead Sciences (NASDAQ: GILD) and Celgene (NASDAQ: CELG) hopefully will provide reassurance to the market when they come out in a few weeks.
Portfolio Update:
We added small cap Xencor Inc. (NASDAQ: XNCR) to the Biotech Gems portfolio in our supplemental edition that came out earlier in the week. The company recently signed a major collaboration deal with Amgen (NASDAQ: AMGN), a core position within our portfolio, this month. Speaking of Amgen, it and Gilead Sciences were named as two of the top three large cap biotech stocks investors should own into earnings this week at UBS; this is a great confirmation of their investment prospects.
In other news on the stocks in the portfolio, Pacific Biosciences of California (NASDAQ: PACB) soared higher throughout the week moving from roughly $6.00 a share to over $8.00 a share in five trading sessions. The company launched its new nucleic sequencing platform this week that was well-received by investors. The new device is smaller, more capable, and cheaper than the previous version at $350,000 a piece. This makes Pacific much more competitive in their space.
Biotech Gems Stock Highlight Of The Week:
The small cap biotech sector has been very challenging. Over the past 10 weeks, just about every stock in the space has posted large declines, almost entirely as a result of the change in overall investor sentiment on the sector. I get asked a lot of questions on where I would add a few shares to right now within the small cap portion of Biotech Gems. Obviously I love all my “children” in the portfolio over the long term, but some have stronger near-term catalysts. I am going to highlight one of these in each of these weekly updates going forward.
Pernix Therapeutics (NASDAQ: PTX) has declined significantly since being put into the portfolio, and the company should post a small loss in FY2015 after being in the black in the previous year. However, Pernix will also deliver approximately 40% year-over-year revenue growth this year even as it integrates and cross-trains its expanding sales force and newly acquired product portfolio from Zogenix (NASDAQ: ZGNX) earlier in the year.
2016 should be the year this purchase pays off in a big way as the consensus has sales growing approximately 30% in 2016 with earnings coming in between 45 to 65 cents a share next year. This makes Pernix very cheap on a forward earnings basis given the shares have dropped to just over $3.00 recently.