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Celgene: Broken Stock or Company?

Celgene may be a broken stock, Cramer said Thursday, but it’s not a broken company. A blockbuster drug, great balance sheet and management eager to please shareholders should lead to returns that apparently Wall Street doesn’t see right now.

Celgene at $40.77 is down 47% from its 52-week high. This once-loved momentum name drifted lower and lower as the market sold off for much of 2008. Then on Tuesday, the company pre-announced a worse-than-expected first quarter and full-year performance. Investors hit the stock for another 10% in the after hours. But that just makes the stock all the more attractive, Cramer said, because he still believes in Celgene’s fundamentals.

The company said it would deliver “just” 20% earnings growth in Q1 and maintained its long-term growth forecast of 25% to 30%. Believe it or not, these are disappointing numbers for Celgene. Higher unemployment leads to fewer people with insurance, and that makes it all but impossible for those in need to pay $6,000 a month for Revlimid, Celgene’s blood cancer drug. This trend and the slower-than-expected European rollout of another key drug, Vidaza, were the main reasons behind the disappointing pre-announcement.

Cramer, though, is extremely bullish about Revlimid. This blood cancer treatment can be used for more just that, and multiple indications are biotech gold. Prescriptions were up in January, February and March even despite the downturn, the drug is still taking share, and sales this year should reach $1.7 billion. Even Vidaza is taking share.

Celgene trades at about 19 times what Cramer thinks are beatable earnings estimates for 2009. That means the stock trades at just 0.6 to 0.7 times the company’s growth rate, and any multiple below one in this case is a rarity. The balance sheet holds $3.1 billion in cash, and Celgene expects to generate $900 million in cash flow this year. Cramer also thinks that management will be working hard to keep shareholders happy after the lowered guidance. So there are a number of forces at work that might surprise Wall Street by the time Q2 rolls around.

Here’s your chance to get in early on a stock with a great long-term story, Cramer said, and a low price. It’s just the kind of play that investors should look for in this market, or any market for that matter.



Cramer’s charitable trust owns Celgene.

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