It takes guts to buy a stock when it's down and the bad news shows little sign of abating. But such bottom-fishing can be enormously profitable if you're right about the long-term prospects of a company. Take struggling biotech giant Amgen (symbol AMGN). The stock, recently trading at $48, is down 44 percent from its record high, set in September 2005.

The market is spooked by reports that raise safety concerns about the company's key anemia-fighting drugs, Epogen and Aranesp. Together, the two products recently accounted for 45 percent of Amgen's annual sales of about $14.6 billion and for 60 percent of profits.

But the drumbeat of disappointment is music to the ears of bargain hunters, who love nothing more than a good company fallen (temporarily) on hard times. One such value maven is George Putnam, editor of the Turnaround Letter, who recently recommended Amgen's shares. "Amgen may have some setbacks," Putnam says, "but we feel that the company will continue to be one of the leaders in a key industry."

In particular, Amgen's lineup of products in development is considered the strongest in the biotech industry, Putnam says, targeting the conditions that plague a graying population — from osteoporosis and diabetes to prostate cancer and Alzheimer's. And Amgen is willing to boost its pipeline through acquisitions. The Thousand Oaks, Calif., company has almost $6 billion in cash — enough to fund research and development and shop for partners.

What's more, Amgen has embarked on an ambitious plan to preserve earnings, even as revenue growth stalls in 2008. The company is cutting expenses, having reduced staff by 13 percent last year and scaled back on plant and facility upgrades. The next test for Amgen is a Food and Drug Administration panel meeting to set guidelines for drugs, such as Amgen's, that are used during chemotherapy. Longer term, analysts estimate that over the next three to five years, Amgen's earnings should grow nearly 10 percent a year, in line with the industry.

That may be a far cry from the heady growth rates of Amgen's youth. But in 2000, Amgen's price-earnings ratio peaked at 77. Today, it's 11 (based on estimated 2008 profits). Little wonder that such value gurus as David Dreman, of Dreman Value Management, and Bill Miller, of Legg Mason Value, have been nibbling on the shares.

Provided Amgen can put its regulatory issues behind it, the bulls see the stock trading closer to the industry average of 15 to 16 times earnings — suggesting a share price in the mid $60s. Putnam is telling subscribers to buy Amgen at up to $70 a share, but cautions that this is not a stock for those who seek instant gratification.


Anne Kates Smith is a senior associate editor at Kiplinger's Personal Finance magazine. Send your questions and comments to [email protected]