Expect Healthy Numbers From This Biotech Stock

October 20, 2009

Expect Healthy Numbers from Amgen (AMGN)

Welcome to another edition of Stock of the Week, a FREE weekly message where I give you my in-depth analysis on the stocks that matter to you most—with no mysteries and no strings attached. Just my take on the stocks everyone is talking about. Stock of the Week is designed to give you the information you need to make sound investment decisions, and it will arrive in your email box every Tuesday after the market closes. (View complete Stock of the Week archive here)

Today, I’ll highlight the reasons I think you should buy biotech giant Amgen (AMGN) in anticipation of a strong quarterly report on Wednesday, October 21.

In general, I see huge opportunities in pharmaceutical and biotech companies right now. Big pharma has been actively working with the Obama administration to promote health care reform—and will be spending $150 million in ads this fall to promote some form of broader coverage. While Congress hashes out all the gritty details of those health care reforms, the bottom line is that more coverage means more customers for the businesses that provide treatments.

Whether medications are purchased by individual patients, Uncle Sam or private insurers, the companies that make these treatments just want the sales! And the bottom line is that taking a pill is considerably cheaper than running an extensive series of tests, so better prescription drug coverage is all but assured in the final version of any bill that is passed.

Of course, not all drugmakers and biotech firms are created equal. Johnson & Johnson (JNJ) just reported earnings last week that showed signs of trouble even while competitor AMGN is going strong.

Why Amgen (AMGN) Is a Buy

My stock-picking system relies on the facts—not on the fads. That’s why I do extensive research to make sure that the numbers support a recommendation. As I explained last week when I rated IBM (IBM) and Compellent Technologies (CML) good investments, the two most important factors when assessing a stock are current strength and the potential for future growth.

Let’s see how Amgen (AMGN) stacks up on these fronts:

Current Strength: As the largest biotechnology company in the world, AMGN has a number of highly popular lifesaving drugs fueling its current growth. Some of the better-known Amgen medications are Epogen and Aranesp, which treat anemia, and Enbrel, a leading arthritis drug. Together, these medications account for more than one-third of the company’s sales. Amgen currently has five "blockbuster" drugs on the market, characterized by more than 1 billion in annual sales. These big-name treatments are really doing wonders for Amgen. At the end of July, AMGN reported it earned $1.27 billion in the second quarter—up 54% from the same period a year ago! Amgen has seen strong recessionproof sales and earnings even during the turmoil on Wall Street over the last year or so, and continued success as the market recovers.

(For my FREE Portfolio Grader stock report on Amgen, click here.)

Stocks of the Week
Amgen (AMGN)	Johnson & Johnson (JNJ)
2Q revenue: $3.71 billion	3Q revenue: $15.1 billion
Revenue % change: -1%	Revenue % change: -5.3%
2Q profit: $1.27 billion	3Q profit: $3.35 billion
Profit % change: +40.2%	Profit % change: +1.1%

Compare Amgen’s big profits to big pharma competitor Johnson & Johnson (JNJ), which reported earnings on October 13, and you’ll see why I think AMGN is a the best drug stock right now. Last week, JNJ said revenue fell 5.3% for the quarter with U.S. sales dipping by more than 8%—a trend mirroring other struggling health care stocks. Since Johnson & Johnson’s earnings date, the company’s shares have been on the decline even though Wall Street has rallied strongly. If you want to tap into the pharma boom, you need to keep growing sales—and JNJ simply doesn’t pass this test.

(For my FREE Portfolio Grader stock report on Johnson & Johnson, click here.)

Clearly AMGN is one of the pharmaceutical industry leaders right now, dramatically outpacing the performance of competitors. Now let’s look ahead and examine the company’s future growth potential.