After the pretty dismal months of August and September, the fourth quarter has started out much better for investors. The recent rally has been led by the out of favor value stocks, such as those from the beaten down commodity and energy sectors, which are off to very solid starts in October. However, I doubt this shift will last. Headwinds such as continued economic weakness in China and most of the globe will prevent energy prices rising to anywhere near the levels we saw in 2014. In addition, given how deep the losses have been in these sectors a huge amount of “tax loss selling” should hit the sector through year end.
Meanwhile, after posting almost four percent GDP growth in the second quarter of 2015, forecasts for third quarter GDP growth keep getting slashed. Some are predicting the just completed quarter will clock in with just one percent growth. Global demand continues to fall and the domestic economy continues to muddle along within the weakest post-war recovery on record.
In addition, third quarter earnings are expected to be down year-over-year for the second quarter in a row after this earnings season is complete. I believe this “profit recession” will again push investors back into growth stocks that can churn out both revenue and earnings growth despite a very challenging global economic backdrop. Here are a few large cap growth plays I own that have reasonable valuations and should come back into vogue by the end of 2015.
On Thursday, I penned an article on why the bear market in biotech is likely to be over by the end of the month. That makes some of the large cap growth plays in the sector great long term buys after their recent sell-off. I added some Celgene (CELG) over the past month as the shares fell from over $140.00 to under $105.00 a share at one point during this recent pullback in biotech.
They are still a nice bargain at under $120.00 a share. The company’s flagship blood cancer drug Revlimid continues to see impressive growth and is now doing over $5 billion in annual sales. Other products in the portfolio like Abraxane are also showing good growth. The company is not resting on its laurels either. It purchased promising biotech play Receptos (RCPT) earlier this year for just over $7 billion. Celgene also recently got into the emerging area of immuno-therapy this summer with a $1 billion collaboration deal with Juno Therapeutics (JUNO).
