I've Spotted Three Biotech Bargains Amid the Melt-Up

The markets seem determined to continue to melt up, even as equities sell at extreme valuations based on a myriad of historical valuation metrics. The post-election good vibes enthusiasm continues to move stocks to all-time highs. Worries about potential tariffs and the impact they could have on the economy will likely have to wait for next year to come to fruition, as investors look to close out 2024 on a high note.

I was happy to see the yield on the 10-Year Treasury fall sharply on Monday on the announcement of the Trump administration’s Treasury Secretary nomination. My regular readers know I believe the higher-for-longer scenario around interest rates is going to have much greater impact on both residential and commercial real estate than is currently priced into the markets. October new home sales came in at far under expectations on Tuesday, with a large surge in inventory levels, which are now up to 9.5-month level of supply.

Those concerns will have to wait for another day as I have money to put to work in this market as my holdings of short-term treasuries redeem and my portfolio’s covered-call positions expire in the money. Biotech and biopharma are among the few sectors of the market that I am finding some decent values in, so I am adding to, or initiating new positions in, here, almost entirely with covered-call orders. 

First, I had to add some additional holdings in Amicus Therapeutics FOLD this week, as the stock feels like a steal at under 10 bucks a share. The options against this equity are both lucrative and liquid as well. The company should see over 30% revenue growth this year and Amicus is becoming profitable. Amicus also settled patent litigation with Teva Pharmaceuticals TEVA last month.

Collegium Pharmaceuticals, Inc. COLL also appears more than undervalued at around six times trailing earnings. The company operates in some crowded markets, but revenue growth should be in the low to mid-teens over the next couple of years. Collegium is also using its cash flow to pay down debt with a goal of having net leverage of 2-times or less by the end of this fiscal year and management is also buying back stock to boot. Finally, Collegium delivered third-quarter numbers earlier this month that beat both the top- and bottom-line consensus.

Then we have Amphastar Pharmaceuticals, Inc. AMPH, which I am just starting to dip into. The company manufactures and markets generic and proprietary drugs that are administered through injectable, inhalation, or intranasal methods. The company has a diversified product portfolio, but faces increasing competition in some key products. That said, both revenues and earnings should grow in the mid-teens this fiscal year and the company has a solid balance sheet. Just over 11-times this year’s projected profits feels like a good price, especially given the valuation being granted the overall market right now.

At the time of publication, Jensen was long AMPH, COLL and FOLD.