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John Buckingham, money manager with Al Frank Asset Management, is a leading value oriented investor; here, the editor of The Prudent Speculator looks at a pair of healthcare stocks where he still sees upside potential despite recent setbacks.

Despite reporting Q3 revenue and adjusted EPS that topped consensus analyst estimates, shares of Biogen (BIIB) lost almost 9% last week as investors seemed to project negative forward trends on BIIB’s results.

The biotech firm said its adjusted EPS came in at $6.31, versus forecasts of $5.73, on revenue of $3.08 billion, versus estimates of $3.05 billion.

While we thought the quarter was solid, and we were glad to see the spinal muscular atrophy therapy Spinraza with reported sales of $271 million (versus expectations of $253 million), there were multiple reports that analysts had “whisper” sales numbers of up to $300 million.

Additionally, the firm’s MS drug sales lost a little ground to competitor Roche’s Ocrevus. While we never like to see things like this, we note that Biogen receives royalties for every dollar of Ocrevus sold. So, while it is not dollar for dollar, any ground lost to Roche, is not a total disaster.

While some may not be that excited about Biogen’s Q3, we were encouraged to see another solid quarter and continue to be attracted to its strong free cash flow generation and its willingness to aggressively buy back shares while investing in the future.

With cash and marketable securities of $6.5 billion, BIIB also has the ability to grow via acquisition, or continue to heavily invest in its promising drug pipeline. Shares trade at just slightly more than 13 times next-twelve-month earnings projections. Our target price has been inched higher to $439.

Shares of Merck (MRK) fell almost 8% after the pharma giant’s third quarter financial report and news that the company had withdrawn an application in the EU for its increasingly popular Keytruda drug in combination with other medications for the treatment of non-small cell lung cancer.

While MRK’s revenue for Q3 of $10.3 billion fell a bit short of estimates, adjusted EPS of $1.11 outpaced forecasts calling for $1.04. While Keytruda sales posted almost 200% growth, MRK said it was impacted by minor sales setbacks due to a cyberattack in June.

Also, investors seemingly became concerned about upcoming challenges in 2018, including increasing competition to hepatitis C drug Zepatier and shingles vaccine Zostavax, as well as continued generic pressure on cholesterol-lowering drugs Zetia and Vytorin.

We believe the strength in Merck’s immuno-oncology platform and in its Animal Health business, along with the potential of its pipeline, should more than offset patent losses and branded competition.

Shares of MRK trade at less than 15 times next 12-month earnings and offer a dividend yield of 3.2%. True, there are plenty of competitive pressures in addition to growth opportunities, but we still like high-quality MRK, though we have trimmed our target price to $74.

John Buckingham is editor of The Prudent Speculator.

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