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Amgen’s Pipeline Create Upside Potential

Richard Gallagher, Associate Director, Value Line Research, recommends investors take a look at Amgen Inc. (AMGN). The California-headquartered corporation, which discovers, develops, manufactures, and markets treatments for serious ailments, is one of the largest biotech medicines companies in the world. It has a market capitalization of about $140 billion and employs 21,000 persons. Amgen became a member of the Dow Jones Industrial Average at the end of August, replacing Pfizer in the prestigious index.

The company reported solid second-quarter results thanks to heightened demand for some of its newer offerings and cost-containment efforts. This performance is particularly commendable considering the myriad coronavirus-related disruptions the company’s business has faced.

Decreased visits to doctors’ offices reduced the number of prescriptions filed, while an emphasis on social distancing has led to clinical trial postponements. However, Amgen’s competitive portfolio includes many medicines that treat serious and life-threatening illnesses, which has led to modestly increasing demand, overall. A well-defined supply chain has been another asset throughout these uncertain times.

Amgen has numerous clinical trials scheduled in the coming months. Despite the pandemic, the need for cures for other serious illnesses does not change. Such demand may act as a catalyst for AMGN shares. For example, a prospective treatment, Otezla, which is used for the pulmonary distress disorder, can also have relevance as a COVID-19 treatment. Another potential drug in the pipeline is AMG510, which is employed for small cell lung cancer. All told, these trials create upside potential for the company in the near term.

Shares of AMGN are ranked to outperform the broader market over the coming six to 12 months. The company has a gilt-edged balance sheet (Financial Strength: A++) and a strong portfolio of medicines, which should give it a competitive advantage over some of its peers and makes the stock less speculative than others in the sector. This issue also offers an above-average dividend yield and a growing payout. We view Amgen as a strong choice for conservative and income-oriented accounts.

Source: Value Line Market Focus, 551 Fifth Ave., FL 3, New York, NY 10176.

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