2013: The Year Biotech and Pharma Saved the Stock Market.

Bill Gunderson

12/13/2013 12:01:00 AM - Bill Gunderson

The world is full of people who are sick and getting sicker. Or maybe just smart people getting smarter.

Or both.

Either way, 2013 will be remembered as the year biotech and pharmaceuticals saved the stock market.

From companies with drugs in their pipeline to companies still developing them, this has been the garden spot in the market this year – a year desperate for garden spots.

One such stock that I have owned and continues to be one of my largest positions at Gunderson Capital Management for quite some time now is DexCom Inc. (DXCM). Headquartered in San Diego, CA, DXCM is a $2.5 billion mid-cap company, and mid-caps have been yet another one of the favorable places to be in 2013.

Data from Best Stocks NowApp

DXCM develops products that assist people living with diabetes to manage the disease. Their products range from glucose monitoring devices, to software, and there’s even a smartphone app!

And as long as most of the stuff in the grocery stores is guaranteed to cause diabetes, DXCM should do just fine.

Performance

Over the last five years DXCM has been one of the top-performing stocks in the entire market. I like performance, or momentum as others call it; it’s half of the equation.

Data from Best Stocks NowApp

Over the last five years DXCM has returned an annual average of 57% per while the market has been up only 15%.

Over the last three years DXCM has delivered 42% per year while the market has delivered 14%. DXCM has almost more than tripled the returns of the market.

And over the last 12 months the returns have knocked the ball out of the park. The stock is up 151% while the market is up 28% over the last 12 months.

Valuation

Valuation on DexCom is tricky as it is yet to turn a profit. Most biotechs don’t. Not for a while. That does not seem to matter to investors. Not that much.

When I look at the last four quarters of sales I see reports of 49%, 47%, 53%, and 86% growth and sales. Compare that with Johnson & Johnson, Cisco, or some of the other stocks that have slowed down to single digits. Future growth should be equal to future stock appreciation. There are no guarantees here but your probability of future stock appreciation rises by buying stocks that are growing at a rapid rate.

Data from Best Stocks NowApp

Now let’s discuss future earnings. DXCM actually expects to lose $0.16 cents this year but this gap has been narrowing very rapidly and DXCM continues moving towards profitability. So we can’t put an exact valuation on DXCM. However, we can look to the stock chart to see what kind of anticipation there is for future earnings at the company.

Stock Chart

When I look at the stock chart, I would argue that it is one of the strongest stock charts in the entire market!

And guess what? It’s hitting a new all-time high today!

So with DXCM, my app has taken into account only two of the three components that I require of stocks that I buy, performance and the stock chart, because I cannot tell you exactly how much upside potential the stock has. There are no numbers that we can sink our teeth into compute that. But I think that at some point in the future we will have those numbers. And the existing two components are so powerful at the moment that I have no problem justifying owning this stock right now.

I do not make recommendations, but give examples of what I consider to be the Best Stocks Now. My app is non-political, is not optimistic nor pessimistic, and it also does not read the news. All it does is look at and crunch the numbers then delivers concurrently what the best stocks in the market are at any given time.

Data from Best Stocks NowApp

Right now DXCM is a very good example of a Best Stock Now which is the reason you will find it in my aggressive growth portfolios. One month ago DXCM was #16, three months ago it was #36, and six months ago #43. As you can see it has been in my top 50 for six months and it has also been a big position at my firm during that time. And today, out of 3,751 stocks that I currently track in my database, DXCM comes in at #46!

Data from Best Stocks NowApp

Please follow me on Twitter or at my website for a change in opinion of the stock or for information on my management services.