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Cramer: Has Goldman gotten this stock wrong?

Monday, 6 Jan 2014 | 6:01 PM ET

Analysts at Goldman Sachs just downgraded this stock to a sell. Jim Cramer begs to differ.

The stock is Celegene.

Largely Goldman expressed skepticism about the entire biotech sector, however the firm turned a particularly cold shoulder toward Celgene downgrading the stock to Sell from Neutral. According to published reports, Goldman is now the only Wall Street firm advising investors to exit the cancer drug maker.

Although Goldman takes aim at several aspects of Celgene, Cramer believes two key points are behind the downgrade.
1) Celgene has moved up much further and faster in valuation than just about every other biotech.
2) Celgene's anti-psoriasis drug, which is up for approval this year may not be successful as expected



Roy Hsu | Photographer's Choice RF | Getty Images

Looking at issue #1, "I recognize that Celgene's moved up a great deal, in part because it has a gigantic franchise in Revlimid, its blood cancer drug," Cramer said. "But it also has some other drugs including one for pancreatic cancer and another for rheumatoid arthritis, that I think could be blockbusters, with earnings streams that might give Celgene as much as $17 in earnings power in a few years time. That would mean this stock in the $160s, sells for a lower multiple on the outyears than much slower growing traditional drug companies like Lilly and Pfizer."

Turning attention to issue #2 "I'm a huge believer in the potential of the anti-psoriasis drug, and think it will have a much longer reach than just psoriasis," Cramer said.

But Cramer isn't critical of the Goldman downgrade simply because he sits on the other side of those two issues. He thinks Celegene leverages important themes that he believes will remain investable for a long time to come..

First, Cramer thinks biotech companies are emerging as nimble and powerful players in the health care sector with their ability to generate blockbuster new drugs that could change the way in which we live. Cramer's so-called 4 horsement of biotech; Celgene, Regeneron, Biogen Idec and Gilead all play into the theme.

Second, Cramer says high quality CEOs should command investor attention, simply for the skillful way in which they run their companies. Cramer believes Celgene CEO Bob Hugin fits that criteria.

All told, Cramer sees every reason to buy, not sell.

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"I believe this decline in Celgene presents a terrific place to start a position," Cramer insisted.


"Notice I said, start a position, not buy a full position, because this is a $160 stock that could have more down days after such a remarkable run. But when you have a powerful long-term theme like the wonders of biotech and you have a bankable CEO like Bob Hugin then I like to take advantage of weakness," said Cramer. It's weakness likely made possible thanks to Goldman Sachs

Call Cramer: 1-800-743-CNBC

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