Amgen is our growth stock of the week…

Biotech stocks outperform on attractive valuations and strong catalysts. Amgen (AMGN) is one of the leading stocks in the space due to its strong product portfolio, pipeline and impressive management team. Read on to find out why this is our stock of the week.

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The market and economy face several unique and challenging threats as we enter the second half of the year.

The main concern of the market is now recession rather than inflation. Evidenced by declining longer-term rates and recent weakness in commodity prices. We also see this change reflected in the Fed funds futures market which now shows the expectation of 3 rate cuts in the first half of 2023 whereas 6 weeks ago the market was looking for 3 rate hikes in the first half of 2023 .

This environment is tricky for investors as they cannot find safety in inflation-proof vehicles, which was a winning strategy in the first half. Instead, investors should look for stocks that are insulated from economic and currency shocks and have strong, secular growth rates. Healthcare, pharmaceutical and biotech stocks are an example of such a group.

In this sector, investors should look to companies with attractive valuations and improvements in operations that may have been overlooked in the first half of the year. In today's article, I want to talk about Amgen (AMGN) and why it's a great long-term buy at current levels.

Company History

AMGN is one of the original biotechnology companies and is a pioneer in the field of biologics. Even today, 80% of the company's income comes from organic products. Currently, its top 3 selling drugs are Enbrel for inflammatory diseases, Prolia for osteoporosis and Neulasta which reduces the risk of infection in chemotherapy patients.

These 3 drugs accounted for nearly 50% of AMGN's sales last year, with 74% of sales coming from North America. This concentration is certainly a risk and a factor in the stock's recent underperformance. However, the company experienced strong growth in international sales. It has also been aggressive in making acquisitions to keep its pipeline well-stocked.

GARP

AMGN is a well-diversified biotechnology company with a strong pipeline of products and a proven management team that brings profitable drugs to market through acquisitions or internal efforts.

Despite these attributes and the favorable sector dynamics listed above, the stock is quite cheap with a forward P/E of 13 and an above-average dividend yield of 3.1%.

Last year, AMGN achieved EPS of $17.1 and revenue of $26 billion. This year, analysts expect a modest improvement to $17.65 in EPS and $26.2 billion in revenue. It also boasts profit margins of 22%, nearly double those of the S&P 500.

POWR Ratings

AMGN also stands out in terms of POWR ratings with an overall rating of B, which equates to a buy. B-rated stocks posted an average annual return of 20.1%, beating the S&P 500's average gain of 8%.

In terms of component ratings, AMGN has an A for Quality, which is consistent with its strong balance sheet, low debt, and reputable management team.

What to do next?

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AMGN shares were trading at $249.44 per share on Friday afternoon, up $2.02 (+0.82%). Year-to-date, AMGN has gained 12.73%, compared to a -17.66% rise in the benchmark S&P 500 over the same period.

Jaimini Desai has been a journalist and financial reporter for...