Buy Genentech (DNA) and get 15% compounded rate of return for 5 years.

The biotech sector hasn't been doing so well but Genentech (DNA), the world's second largest biotechnology company, should outperform over the long term.

Genentech markets
-Avastin for treating metastatic cancer of the colon or rectum and metastatic non-squamous non-small cell lung cancer,
-Rituxan to treat B-cell non-Hodgkins lymphoma
-Herceptin for treating node-positive breast cancer
-Lucentis to treat neovascular (wet) age-related macular degeneration.
-Xolair for adults and adolescents with asthma
-Tarceva for the treatment of metastatic non-small cell lung cancer, as well as in combination with gemcitabine chemotherapy for the first-line treatment of metastatic pancreatic cancer

If you read the 2006 annual report, all of Genentech's drugs are increasing in sales and also has a heathly pipeline. Their internal target earnings growth rate is 25%!

Forecast
-If you take the current earnings per share of $2.24 and compound it by a 5 year growth rate of 23% (analysts predict 25-37%) multiplied by a conservative future p/e of 25 equals a future stock price of $157.66 in 5 years. Based on today's closing price of $76.89, that's a compounded rate of return of 15%.

Factors
-If you look at the earnings history, Genentech beat it for the past 4 quarters!
-Buying it now, would give you an initial rate of return of just 2.91% (2.24/76.89). Usually I like this number above 5%
-Current p/e is at a 34 with a forward p/e of 22.
-Genentech, Inc. Extends Stock Repurchase Program
-It was recently upgraded by Deutsche Bank when it was $74. Just when I was about to recommend it too...darn it!

I consider this a bit of a speculative play and would only start buying with a small position and average down again if it goes to $65. I say it again....Never buy all at once and buy in wide scales.

It May Be Bargain-Hunting Time In Genentech