2 No-Brainer Stocks to Buy in Biotech

These stocks are great anchors for any healthcare investor's portfolio.

For investors who want to add companies that enjoy stability and reliable growth to their portfolios, Amgen (NASDAQ:AMGN) and Biogen (NASDAQ:BIIB) are easy quick picks. Both are consistently profitable, cash-rich, and have a history of delivering for shareholders in the form of dividends or stock buybacks. As importantly, each boasts a diverse drug development pipeline that's chock-full of late-stage programs approaching potential regulatory approvals and market entry over the next few years.

Amgen and Biogen are set to report their third quarter earnings as well as updates from several key clinical trials next month. As early as 2021, expected approvals of new drugs may also lift the year-over-year quarterly sales revenues of both companies from their single-digit percentage points, driving growth in the process. Let's investigate in more detail what they biotech stocks have been up to and why they deserve a spot in your portfolio sooner rather than later.

Amgen aims to capitalize on Otezla

Unlike some biotechs, Amgen doesn't have any specific disease focus area for its products, opting instead to develop a wide array of therapies for conditions from osteoporosis to arthritis. Having joined the Dow Jones Industrial Average at the end of August, Amgen is now in preparations to advance a handful of its pipeline projects into their final stages over the next year.

In particular, the company will soon report much-awaited phase 3 clinical trial data for heart failure drug candidate, omecamtiv. Given that heart failure is one of the leading causes of death worldwide, success with omecamtiv would allow the company to establish a foothold in a massive market with the potential to drive long-term growth.

Investors should also keep an eye on revenue from Otezla, a therapeutic that Amgen purchased in 2019 from Celgene (NASDAQ:CELG) for $13.4 billion in cash. Though the drug is already approved for indications like adult psoriasis and arthritis, Amgen is developing it even further. Ongoing phase 3 clinical trials are investigating its efficacy in treating pediatric Behcet's disease, pediatric psoriasis, and pediatric arthritis. If these trials conclude with positive results, Amgen will make up the cost of the all-cash purchase more rapidly while adding to its formidable library of inflammation therapies. By the end of the next fiscal year's first half, the company's revenues could be considerably larger than the recent half's $12.3 billion in sales, which was up 8% year over year.

As if an exciting pipeline output weren't enough, Amgen has also continued to increase its dividend each year since 2011. Although the 2.48% trailing annual dividend yield is closer to the S&P 500's average yield of about 2%, it's important to remember that the company engages in opportunistic share buybacks whenever it can, so shareholders are likely to be rewarded in more ways than one.

Biogen's Alzheimer's therapies will help it corner the market

Whereas Amgen invests in numerous disease areas, Biogen focuses on producing neurology drugs so that it can maximize domain synergy in its research and development (R&D) operations. Biogen's pipeline is packed with programs targeting Alzheimer's disease, multiple sclerosis, and other neurodegenerative ailments. 

The company recently filed for the regulatory approval of its Alzheimer's biologic, aducanumab. If it receives approval, aducanumab could be on the market as soon as next year. If aducanumab flops, however, Biogen has BAN2401 in its back pocket, another antibody-based therapy for Alzheimer's in phase 3 of clinical trials. If both of these drugs are approved, it would open the door for Biogen to create combination therapies that can hopefully achieve superior therapeutic effect -- and generate more revenue.

Next year will be exciting for Biogen regardless of its work on aducanumab. The company's projects for amyotrophic lateral sclerosis (ALS), also known as Lou Gehrig's disease, and choroideremia, an inherited retinal disease, both report their phase 3 results in 2021. Other therapy candidates for Parkinson's, Alzheimer's, and multiple sclerosis that are reaching the end of their phase 2 trials should also report next year. Through these programs, Biogen is angling to cement its status as the leader in neurodegenerative disease therapy development so that it can remain a dominant player over the next decade and beyond.

Unlike Amgen, Biogen has no dividend, but it does have another attribute that sweetens the pot for investors. Simply put, Biogen is a bargain today. With a trailing price to earnings (P/E) ratio of 8.01 compared to the biotech industry's average of 77.56, Biogen's stock is probably undervalued, but it won't stay that way forever.