Are Beech Hill Advisors’ Top Biotech Stock Picks Poised For A Big Q4?

Beech Hill Advisors is a New York-based registered investment advisor founded by Paul Cantor and Joseph Weiss in 1987. Mr. Cantor has been an investment manager and portfolio strategist since 1968, while Mr. Weiss has been an analyst and portfolio strategist since 1965. Both Mr. Cantor and Mr. Weiss formed a partnership in 1975. Mr. Will Wurm joined the firm in 1992 as a portfolio manager and became a partner in 2003. Beech Hill Advisors recently filed its 13F with the Securities and Exchange Commission (SEC) for the reporting quarter ending September 30. According to the filing, Beech Hill Advisors’ U.S equity portfolio at the end of September was worth almost $157 million. The filing also revealed that after Information Technology, Healthcare was the second-most preferred sector of the fund during the third quarter, with stocks from it accounting for 19% of Beech Hill’s equity portfolio. Since Beech Hill has considerable exposure to healthcare and biotech in particular, in this article we are going to take a closer look at the top five biotech stocks on which Beech Hill Advisors is betting.

We track hedge funds and prominent investors because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 50 most popular large-cap stocks among hedge funds had a monthly alpha of about six basis points per month between 1999 and 2012; however the 15 most popular small-cap stocks delivered a monthly alpha of 80 basis points during the same period. This means investors would have generated 10 percentage points of alpha per year simply by imitating hedge funds’ top 15 small-cap ideas. We have been tracking the performance of these stocks since the end of August 2012 in real time and these stocks beat the market by 53 percentage points (102% return vs. S&P 500’s 49% gain) over the last 37 months (see the details here).

#5 Celgene Corporation (NASDAQ:CELG)

Shares Owned by Beech Hill Advisors (as of September 30): 3,594 shares

Value of Holding (as of September 30): $389,000

The third quarter turned out to be quite eventful and volatile for Celgene Corporation (NASDAQ:CELG) as the stock ended up making both its high and low for 2015 (until now) during that period. It seems Beech Hill Advisors wasn’t daunted by this volatility, but rather saw it as an opportunity and initiated a stake in the company. Shares of Celgene Corporation (NASDAQ:CELG) – which until Wednesday were trading with year-to-date gains of more than 12% – declined by more than 5% yesterday after the company reported mixed third quarter results. EPS for the quarter came in at $1.23 on revenue of $2.33 billion, versus analysts’ expectations of EPS of $1.22 on revenue of $2.4 billion. On the conference call following the release of the results, Celgene’s hematology and oncology chief, Jacqualyn Fouse, acknowledged that the company in its guidance had failed to account for the impact that lung cancer drugs recently launched by rivals would have on the market share of its bestselling lung cancer drug, Abraxan.  Cliff Asness‘ AQR Capital Management was one of the hedge funds that increased its stake in Celgene Corporation during the second quarter; it held over 1.5 million shares of the company as of June 30.

#4 Biogen Inc (NASDAQ:BIIB)

Shares Owned by Beech Hill Advisors (as of September 30): 2,056 shares

Value of Holding (as of September 30): $600,000 

Beech Hill Advisors reduced its holding in Biogen Inc (NASDAQ:BIIB) by 10% or 247 shares during the third quarter. Shares of the biotech major climbed significantly during the first quarter and held on to those gains during the second quarter. However, the disappointing second quarter results the company released in July caused a swift fall in the stock and it ended the third quarter down by more than 25%. The company announced in October that it plans to lay off 11% or nearly 8,000 of its employees and scrape off unwanted research programs. For the third quarter Biogen reported EPS of $4.48 on revenue of $2.39 billion. Analysts had expected the company to report EPS of $3.80 on revenue of $2.65 billion. On November 5, analysts at Piper Jaffray upgraded the stock to ‘Overweight’ from ‘Neutral’. Andreas Halvorsen‘s Viking Global initiated a stake in the company during the second quarter as it purchased 513,444 shares.

Two of the top three biotech stock picks from the trio of elite investors is revealed on the next page.

#3 AbbVie Inc (NYSE:ABBV)

Shares Owned by Beech Hill Advisors (as of September 30): 68,842 shares

Value of Holding (as of September 30): $3.746 million

Moving on, biopharmaceutical major AbbVie Inc (NYSE:ABBV) lost nearly 20% of its market capitalization during the third quarter. However, shares of the company have recovered since the end of September and currently trade at a year-to-date loss of 4.08%. Even though the stock had such a drastic fall, Beech Hill Advisors held on to its conviction in the company, disposing of just 650 shares during that period. Recently shares of the company surged by more than 10% in a single day after it reported its third quarter results on October 30. Though the results were mixed, with EPS coming in at $1.13 on revenue of $4.90 billion (versus analysts’ expectations of EPS of $1.08 on revenue of $5.90 billion), the major reason for the stock’s surge was the forward guidance given by the company that stretched out until 2020. AbbVie Inc (NYSE:ABBV) expects that its annual sales will rise to $37 billion by 2020, which would represent a 10% year-over-year growth in sales. Larry Robbins‘ Glenview Capital increased its stake in AbbVie by 631% to over 17.85 million shares during the second quarter and became the largest shareholder of the company as of June 30 among the hedge funds we track.

#2 Gilead Sciences, Inc. (NASDAQ:GILD)

Shares Owned by Beech Hill Advisors (as of September 30): 41,165 shares

Value of Holding (as of September 30): $4.042 million

Owing to a more than 25% rise in its stock during the first half of the year, Gilead Sciences, Inc. (NASDAQ:GILD) is one of the few biotech stocks that’s currently trading with double digit (14.4%) gains this year. During the third quarter – when Gilead Sciences, Inc. (NASDAQ:GILD)’s stock lost 16.2% – Beech Hill Advisors sold 758 shares of the company. On November 5, a report published in the New England Journal of Medicine highlighted that one of the company’s bestselling Hepatitis C drugs, ‘Sovaldi’ can cause the heartbeat of patients to become abnormally slow and poses a risk to their lives. Experts believe that this report and its findings could cause the sales of Sovaldi to slow down. Gilead announced today that its treatment regimen, Genvoya, which is the world’s first TAF-based, single-tablet HIV-1 treatment regimen, has been approved by the FDA. The company declared better-than-expected third quarter results on October 27, reporting EPS of $3.22 on revenue of $8.30 billion. The consensus among analysts was for the company to report EPS of $2.87 on revenue of $7.84 billion. John Armitage‘s Egerton Capital Limited more than quadrupled its stake in the company to slightly less than 4.0 million shares during the second quarter.

Disclosure: None