The BioTech ETF (IBB) Breakdown

Is it any wonder that the iShares Biotechnology ETF is near its 52-week high and up roughly 50% year to date. The top-six biotechs I’ve mentioned here represent a healthy chunk of the IBB. They all have one thing in common – growth. And, they’re cheap.

 

Stock PE Price/Sales Div Yield (Trailing Annual) Volatility
GILD 37.96 9.9 N/A 0.31
BIIB 33.37 8.8 N/A 0.31
AMGN 18.31 4.8 1.6% 0.23
CELG 43.19 10 N/A 0.26
REGN 41.12 14.9 N/A 0.45
ALXN 67.86 16.4 N/A 0.36

They may not seem to on a PE basis, but the best metric for ‘cheapness’ that I’ve found is measuring the EPS growth rate against that of the PE. To do this, take the PE and divide by the growth rate. A stock growing earnings at 10% and trading at a PE of 10 is cheap, while the same stock trading at 20 times earnings is expensive. A good rule of thumb – I credit Jim Cramer for this useful metric – is a stock trading at 1 times the growth rate is cheap, 2 times is expensive, but still acceptable.

Take ALXN for example – its PE of 90 may seem high, but analysts have it growing its earnings in the ball park of 100%. This makes it cheap ( 90/100 = .9 ) at less than 1 times its growth rate.

This ETF has multiple stocks trading below 1 times the growth rate. There is no one perfect way to measure a growth rate, but looking at the analyst estimates and past growth, one can get a sense of it. I estimate that with the exception of REGN and GILD, all of the top components of this ETF trade below 1 times the growth rate, despite the high PE ratios. Equally as import, all of these stock, even those facing tough quarter on quarter compares, feature really solid sales growth.

Note: I only look 2 quarters ahead in time – I don’t believe any analyst’s vision extends beyond that time horizon.

Stock EPS Qtr. On Qtr. Growth Rev Qtr. On Qtr. Growth
GILD 9.3%   10/2013
0%   7/2013
53.6%   5/2013
6%   2/2013
14.7%   10/2013
15.1%   7/2013
11%   5/2013
17.6%   2/2013
BIIB 22.8%   10/2013
28%   7/2013
43.2%   4/2013
-0.2%   1/2013
31.9%   10/2013
21.3%   7/2013
9.5%   4/2013
6.9%   1/2013
AMGN 27%   10/2013
2.5%   7/2013
27%   4/2013
-7.3%   1/2013
9.9%   10/2013
4.5%   7/2013
4.7%   4/2013
11.3%   1/2013
CELG -10.3%   10/2013
35.4%   7/2013
-1.1%   4/2013
-33.4%   1/2013
18%   10/2013
17%   7/2013
15.1%   4/2013
12.7%   1/2013
REGN -27.3%   11/2013
12.9%   8/2013
718.2%   5/2013
N/A   2/2013
39.6%   11/2013
50.3%   8/2013
89.7%   5/2013
237.1%   2/2013
ALXN 2.2%   10/2013
166.7%   7/2013
78.3%   4/2013
61.7%   2/2013
36.1%   10/2013
34.7%   7/2013
38.5%   4/2013
40.9%   2/2013

The next few quarters look impressive for the key components of this ETF. It can boast high sales and EPS expectations all the way around.

Stock Current Qtr
EPS Growth
Forecast
Next Qtr
EPS Growth
Forecast
Current Qtr
Rev Growth
Forecast
Next Qtr
Rev Growth
Forecast
GILD 34.4% ( High )
6.7% ( Ave. )
-4% ( Low )
69.8% ( High )
41.9% ( Ave. )
20.9% ( Low )
18.6% ( High )
9.4% ( Ave. )
4.7% ( Low )
30.3% ( High )
19.3% ( Ave. )
15.3% ( Low )
BIIB 115.5% ( High )
82.9% ( Ave. )
65.7% ( Low )
53.6% ( High )
41.3% ( Ave. )
27.4% ( Low )
43.9% ( High )
35.4% ( Ave. )
26.9% ( Low )
37.1% ( High )
34.3% ( Ave. )
31.4% ( Low )
AMGN 78.4% ( High )
66.5% ( Ave. )
57.6% ( Low )
10.1% ( High )
-2.1% ( Ave. )
-10.1% ( Low )
13.8% ( High )
8.8% ( Ave. )
5% ( Low )
14% ( High )
11.6% ( Ave. )
8.5% ( Low )
CELG 169.9% ( High )
153.5% ( Ave. )
141.9% ( Low )
88.8% ( High )
80.9% ( Ave. )
76.4% ( Low )
20.2% ( High )
16.8% ( Ave. )
14% ( Low )
20.1% ( High )
17.4% ( Ave. )
11.9% ( Low )
REGN -61.5% ( High )
-73.3% ( Ave. )
-80.9% ( Low )
56.7% ( High )
22.2% ( Ave. )
-7.8% ( Low )
62% ( High )
37.5% ( Ave. )
26.3% ( Low )
53.8% ( High )
36.3% ( Ave. )
25.4% ( Low )
ALXN 116.1% ( High )
108.6% ( Ave. )
103.7% ( Low )
129.3% ( High )
100% ( Ave. )
75.6% ( Low )
37% ( High )
34.5% ( Ave. )
31.7% ( Low )
37.8% ( High )
34.1% ( Ave. )
30.4% ( Low )

Technically speaking, all of these stocks have been on quite a run, and a few at the time of this article are overbought on a short term basis.

Conclusion

If you don’t want to select a specific stock, but like the growth in the sector, I’d go with the ETF. The numbers are pretty persuasive in aggregate. I, however, particularly like Biogen (BIIB), as it has sold off a little bit recently and you might get lucky if you put in a bid at $235. I’ve included the Quarter on Quarter chart because the growth picture looks so ideal. Otherwise, wait for one of the periodic sell-offs and enter the stock of your choice. Be wary of paying up.

Source: QoQ Charts