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Biotech—Outperforming for the Right Reasons

Monday, 17 Sep 2012 | 4:38 PM ET

The NYSE Arca Biotech index hit an all-time high Monday, as investors continued to seek out the group for its above average growth prospects.

Sean Russell | Getty Images

“There are simply not a lot of companies that are growing. As a result we’ve noticed more and more growth fund managers taking an interest in biotech, where earnings results are not correlated with the macro environment,” Cowen & Co’s Eric Schmidt said. (Read More: Is Your 401(k) Ignoring These Hot Sectors?)

One standout stock in the index is Gilead Sciences , which hit a 52-week high Monday.

Wall Street analysts — Schmidt and colleagues from UBS and JPMorgan — are all bullish on Gilead Sciences’ growth prospects.

Just last month, its HIV combo drug was approved, its second for HIV. JP Morgan recently conducted a survey of 50 HIV specialists to get their reaction to the new drugs. As a result of positive findings, analysts at JP Morgan raised revenue forecasts for HIV drug, Atripla.

The analysts also increased the 2014-2015 estimates for its newest HIV drug, Stribild, by $350 to $400 million, writing that “there were no major concerns around the cost for Stribild.”

Matt Roden, biotechnology analyst at UBS, said Gilead remains the top large cap biotech pick. (Read More: A Biotech Short-Seller Responds to Critics.)

“A positive view on several clinical trial catalysts in the hepatitis C and HIV arenas will trigger the street to move their estimates higher, and secondly, Gilead Sciences is still attractively valued — at a discount to the biotech sector,” he told CNBC, noting Gilead’s forward price-to-earnings ratio, 14x 2013 EPS.

—By CNBC's Seema Mody
@SeemaCnbc

Questions? Comments? Email us at marketinsider@cnbc.com

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