Celgene (CELG): Bet on biotech for 'offense and defense'

"We expect to see continued strength in REVLIMID and VIDAZA sales, expanding margins, and continued strong R&D in the company's robust pipeline.

"With $3.1 billion in total current assets (as of June 30th, 2009), no long term debt, and the decreased risk of being a big player in the biotech industry, Celgene is in a strong position. And the stock is still attractive.

"Since analysts expectations for Celgene have historically been extremely accurate, a target price is attained by using long-term EPS estimates.

"I previously felt that Celgene should trade at a multiple of 20 times forward earnings. But with earnings growth expected around 30%, Celgene now deserves a slightly higher multiple.

"Analysts have been raising their estimates; current year EPS is now expected to be $2.05 and 2010 EPS expected at $2.66. I am upping my target price to $60 per share, which results in a current P/E of 29 and forward P/E of 22 times estimates.

"I give companies in high growth industries like biotech higher P/E's than slower growth companies in other industries. And Celgene consistently delivers positive earnings, something many biotech companies don't do.

"The stock has been a strong performer in recent months -- rising some 30% -- but the shares still have a bright future."

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