The Next Best Big Pharma?

Bill Gunderson

10/22/2013 12:01:00 AM - Bill Gunderson

Every day I do my best to prepare for what the market will bring next. But let’s talk about the present and what is out there today because the money is made TODAY.

Predicting the future and investing on those predictions is dicey business at best. Instead, one is much better-off dealing with the facts that present themselves today. And the facts today are that the 4.6 year old bull market still remains intact. American pharmaceutical, technology, oil and gas exploration, and small and midcap stocks continue to dominate and lead the market.

Having said that, I want to discuss one of the few large cap stocks that is handily beating the market. This stock does not fit the current bill of a stock that is favored into today’s market.

Data from Best Stocks Now App

Regeneron Pharmaceuticals (REGN) is a company headquartered in Tarrytown, New York that has many drugs in its pipeline, including a new drug that slashes bad cholesterol in half! Imagine that: now I can have my cream cheese wontons and eat them too!

I have talked and written about it many times before as it is one of the best large caps in the market and it is also a Best Stock Now! In fact, REGN is a big holding of mine at Gunderson Capital Management, in the conservative growth account where I like to put large and midcap stocks.

Now one might question the risk-factor of this biotech, but what we need not forget is that at one time Johnson & Johnson (JNJ), Merck (MRK), and Abbot Labs (ABT) all were $30 billion companies. So is REGN going to grow-up to be another Merck or Johnson & Johnson? I do not know. However, what I can tell you is REGN one of the most impressive drug stocks in the market today.

In fact, REGN is looking forward to 56% growth in earnings this year as opposed to last year! So let’s go through the Gunderson-grading drill. I like to begin with performance

Performance

Data from Best Stocks Now App

Over the last 10 years REGN has averaged 36% per year to investors—put that up against Johnson & Johnson (JNJ)!

Data from Best Stocks Now App

Over the last five years Regeneron has delivered 76% per year; compare that against Merck (MRK)!

Over the last three years RGN has delivered a whopping 118% per year—put that up against Bristol-Myers (BMY)!

And over the last 12 months the stock is up 88%.

REGN has the performance. In fact it is one of those rare birds of a stock that earns an A+ performance grade. Now lately REGN’s momentum has been pretty good. The stock is up 88% like I said over the last 12 months. It currently earns a momentum grade of B+.

REGN could be a little bit stronger in this arena right now, but I bought the stock a while back and it remains strong enough for me to hang onto it.

Valuation

Next I like to look at the valuation of the shares in completing my Gunderson-grading process.

One could say that on the surface, a PEG ratio of 2.12 is pretty rich; REGN is trading at over two times its growth rate. But this is a stock that is expected to grow by 25% per year over the next five years.

Stocks such as these do not come cheap! Unfortunately you’re not going to be able to buy this stock at Bristol Meyers or Merck-like multiples. REGN is a premium stock.

Now I take REGN’s earnings estimates of $5.55 next year and extrapolate them out over the next five years and apply a reasonable multiple.

When I do this I come up with a stock that is considerably worth a lot more five years down the road than where it is trading at today. In my book, REGN gets a value grade of A.

Stock Chart

Lastly, before the Gunderson-grading process is complete, we must check to see how that all-important REGN stock chart is looking?

Not bad—REGN is in a nice uptrend!

Out of 3,575 stocks in my Best Stocks Now! app database, REGN comes in at #117.


Follow me on Twitter @billgunderson or on my website for a change in my opinion of the stock.