Celgene (CELG) has been a dog of a stock for the past five years, trading in a range of approximately $45-$60 a share. The global producer of orally administered cancer and inflammatory disease drugs did spike up to around $75/share in 2007 and again in 2008 for extremely brief periods, but for the most part, has flatlined. This is a head scratcher because Celgene is not only one of the premier large-cap biotech companies, but it is also profitable with a P/E Ratio of only 17.5 and a projected earnings growth rate of between 20%-26% according to most analyst estimates. That's a PEG ratio (price/earnings/growth) of less than one which is a screaming value for a growth stock. If you traded it correctly since 2006, you could have made money, but that is difficult to do. Long-term buy and hold investors that have stuck with Celgene have made a big, fat goose egg. Is there a reason for that?
Going back to 2006, Celgene stalled because of a valuation issue. In that year its P/E Ratio ascended to well over 200 after the share price ran up from $5/share in 2003 (its first year of profitability) to $60/share. Then there was the global financial crisis in the years that followed where very few if any stocks did very well. In the past year, it's been under pressure for a multitude of reasons.
In July of 2010, Celgene spent $3 billion is stock and cash to buy Abraxis BioScience in order to beef up their portfolio of cancer fighting pharmaceuticals. Wall Street thought they paid too much for the company and the stock took a hit. A few months later in December, a study came out showing that their chief drug Revlimid caused secondary malignancies in some patients. These secondary malignancies were a small percentage of the overall study, but, this caused more pressure on the price of the security despite the fact that the study showed patients survival rate greatly improved with Revlimid. Then in January of this year, Celgene missed it's earnings by two cents and shares fell again. Finally, a majority of the healthcare sector has been out of favor because of the uncertainty of about how much government intervention will be allowed in what is being coined as Obamacare in some circles. All is all, Celgene is going through a rough patch.
I like to buy solid companies when they are under the radar and according to Investor's Business Daily, Celgene is an unloved security. On a scale of 1-100, their Relative Price Strength Rating is a paltry 12 for Celgene. No one wants to buy it so it just sits there selling at $53/share with a 52 week low of $48/share. However, on that same 1-100 scale, Investor's Business Daily rates it a 93 for Earnings Per Share Growth. It takes a backseat to very few companies where the fundamentals are concerned. In a recent TheStreet.com rating report they state, "The company's strengths can be seen in multiple areas, such as its robust revenue growth and expanding profit margins.". In a 10/22/2010 article in Investor's Business Daily, they glow about the acquisition of Abraxis BioScience and say: "Celgene is building a 'franchise' in cancer drugs.". With domestic healthcare spending expected to be around $4 trillion and 20% of GDP in the next decade, and, with its large global footprint, Celgene is well positioned to take advantage of the burgeoning oncology market.
What you have to ask yourself is do you have the patience to sit on this stock for awhile till the wheels get back in motion? Celgene is most certainly on the ropes and you could be waiting indefinitely for it to start moving again. That's what value stocks can do, just stay in neutral, but as Warren Buffet says, value and growth are joined at the hip. I think if you have a two year horizon, you'll make money with it, but only you know what your risk/reward tolerance is. In the near term, I'm from the school that thinks we are due for a significant correction, so you may get the stock at a more advantageous price. That's what I'm waiting for. If I were in individual equities, this is the kind of stock I'd like in my portfolio.