Growth Stocks 2015: 3 Companies With Room to Run

Growth stocks should be an integral part of any well-balanced portfolio. But discovering companies with decent growth prospects and whose shares aren't grossly overvalued is easier said than done.

The fact is that most growth stocks garner huge premiums that are oftentimes unwarranted when viewed over the long term. Said simply, they tend to trade on "potential" rather than fundamentals -- and potential doesn't always translate into improving fundamentals.

I look for three qualities when selecting candidates for my growth portfolio: top-notch management, "hidden" value, and, perhaps most obviously, rapidly growing top and bottom lines.

AbbVie,Celgene Corp., andGilead Sciences, arethree well-known biotech stocks that possess these qualities in spades, making them excellent candidates for any growth portfolio. Here's why.

Source: AbbVie.

AbbVie is one of the fastest-growing large-cap biotechs, posting a remarkable 7.8% increase in revenue year over year in the third quarter. Most importantly, this growth story is only now starting to kick into high gear.

With the recent approval of its hepatitis C therapy Viekira Pak for genotype 1 patients and a multiyear agreement with Express Scriptsgranting the drug a favorable reimbursement status on its formulary, AbbVie is set to add billions in revenue to its top line next year. This deal also shows management's prowess at capturing market share for new drugs, a feat it perfected with the company's flagship anti-inflammatory drug Humira.

Back in 2012, Humira was expected to start losing market share to newer competitors such as Pfizer'sXeljanz, but AbbVie's brass was able to persuade most payers to keep Humira at the top of the formulary in terms of reimbursement status. The net result has been several consecutive quarters of double-digit sales growth, making it the world's best-selling drug in 2013.

Aside from Humira and Viekira Pak, AbbVie also has a particularly robust clinical pipeline that boasts several late-stage experimental drugs, including another next-generation hep C therapy. My take is that the market has yet to assign much in the way of value for AbbVie's diverse pipeline, with investors squarely focused on Humira and Viekira Pak for the time being.

Source: Celgene Corp.

Celgene has one of the strongest cancer product portfolios in the industry, rounded out by its three top-selling drugs, Revlimid, Abraxane, and Pomalyst.The key to Celgene's success, and perhaps future growth, in many ways has been management's ability to guide drugs through a series of successful label expansions. Revlimid, for instance, is on the cusp of gaining another half-dozen approvals, including use as afirst-line multiple myeloma treatment.

Celgene has thus been seeing a huge rise in its top and bottom lines over the last few years, resulting in a cash position (when including marketable securities) of nearly $7 billion. So far, we've seen management put this free cash to good use by striking intriguing research deals with clinical-stage biotechs such as bluebird bio that create deep, and potentially latent, value for shareholders.

Adding fuel to the fire, Celgene recently gained approval for its psoriasis drug, Otezla, in the U.S., and an approval in the EU looks likely as well. As such, I think Celgene has all the components of a stellar growth stock.

Source: Gilead Sciences.

Gilead's stock might have gotten roughed up a bit following AbbVie's deal with Express Scripts, but it still has room to run, in my opinion.

The company's next-generation hep C drug, Harvoni, is undoubtedly under pressure from the ongoing pricing war with Viekira Pak. That said, I have a hard time believing every pharmacy benefits manager is going to side with AbbVie simply over price. At the end of the day, Harvoni is a superior treatment with its functional cure rate of 94%, and let's not forget that Gilead's Sovaldi remains the go-to drug for most of the less common forms of the disease. Put simply, Gilead's HCV franchise will still be a major growth driver going forward, despite these headwinds.

Topping it off, Gilead's HIV business has been growing at breakneck pace, largely because of the four-in-one drug Stribild that posted a staggering 128% rise in sales, year over year, in the third quarter.

In my view, though, Gilead's secret weapon is its potent clinical pipeline that sports six potential blockbuster indications, includingnon-alcoholic steatohepatitis. At the same time, it's important to remember that this pipeline has been built, in large part, by Gilead's outstanding CEO, John Martin, who has made numerous key acquisitions during his tenure that have greatly diversified the company's pipeline. With a mounting cash position from Sovaldi and Harvoni sales, Martin should have ample ammunition to continue this trend in 2015.

Foolish takeawaysFinding great growth stocks doesn't have to be a difficult or mysterious process. AbbVie, Celgene, and Gilead are well-known names, yet they all have strong upside potential in 2015 and beyond. My take is that each company's management team has laid out a clear path toward future profits and are aggressively looking for new ways to expand their businesses, making them stocks to watch next year.

The article Growth Stocks 2015: 3 Companies With Room to Run originally appeared on Fool.com.

George Budwell owns shares of AbbVie and Gilead Sciences. The Motley Fool recommends Celgene, Express Scripts, and Gilead Sciences and owns shares of Express Scripts and Gilead Sciences. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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