Cramer: Celgene Stock Is a Buy
It’s time for investors to consider “high quality, turbo-charged secular growth stocks,” Jim Cramer said Thursday. All this week, the “Mad Money” host has been highlighting his favorite growth stocks and added Celgene to the list. Here’s why.
1. Clear Growth Plan: Celgene has the fastest growth rate among large cap biotechs, Cramer said. From last year through 2016, it’s forecasting annual revenue and earnings growth in the mid-teens. Cramer thinks those numbers could be too conservative, though, because analysts expect it to deliver an average of 24.5 percent earnings growth for the next five years.
2. Market For Products: The market for its products is certainly big enough, Cramer said. The market for cancer drugs alone, for example, is currently worth $50 billion.
3. Competition: The patent on its Revlimid doesn’t expire until 2019 and the company may be able to extend the protection through 2023, Cramer said. It also boasts a strong pipeline and has a great track record of making smart acquisitions.
4. Capital To Shareholders: Cramer doesn’t expect Celgene to pay a dividend any time soon because the growth potential from investing in research and development while expanding its sales team is “just too good to pass up.”
5. International Expansion: Celgene is already an “international powerhouse,” Cramer said. It is full integrated with affiliate structures in more than 50 countries.
6. Balance Sheet Strength: The drug company has a “rock solid” balance sheet with $2.6 billion in cash at the end of the third quarter and had just $1.25 billion in senior debt.
7. Is It Expensive?: Celgene currently sells at 13.8 times next year’s earnings despite having a 25.5 percent long-term growth rate. To Cramer, that’s cheap.
8. Strong Management: Cramer praised CEO Bob Hugin.
9. Secular Growth: Celgene is not held hostage to economic growth because people still need pharmaceutical drugs whether or not the economy is doing well.
10. Margin Growth: Cramer thinks Celgene can grow its margins. He noted it already has a 90 percent gross margin, which is still increasing.
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