by James Brumley | February 6, 2014 2:25 pm
Like cheap stocks?
Theoretically, the price of an individual stock shouldn’t matter; everything in the financial world is relative.
In reality, however, the lower a share price is attractive to many investors. The theory is, a penny stock that adds one penny in share price doubles — so some folks think there’s more profit potential here.
If it makes sense to you to chase cheap stocks, here are five cheap stocks in the pharmaceuticals sector with a lot going for them already — and not just the fact that they’re cheap stocks sitting at $20 per share or less.
In no particular order…
Though Sagent Pharmaceuticals (SGNT) makes a few dozen generic drugs and has a similar number in the works, odds are good most investors couldn’t name a single one of them… and that’s a good thing for anyone on the hunt for cheap stocks from the pharma world.
How’s that? Well, in a world that’s largely driven by the search for the next blockbuster drug (and the hype that can get stirred up during the R&D process), the ensuing volatility can be complete torture for investors.
When you’re not looking to change the world with a drug breakthrough, though – and can just focus on churning out highly-marketable generic drugs – life and revenue becomes predictable, and stable.
And, that’s exactly what Sagent Pharmaceuticals is… a picture of consistency, even if not a poster child for pizzazz.
SGNT stock is also valued at a palatable trailing P/E of 19.8, and has logged six straight quarterly earnings beats, making it one of the best cheap stocks in the pharmaceutical industry.
It’s a slippery slope when you start placing bets based on a company with no marketable product, and a lead candidate that’s only in Phase 2 trials. But, Prana Biotechnology (PRAN) may be one of those cheap stocks within the drugmaking world that’s worth the risk.
PBT2 is a drug taking aim at Alzheimer’s, and a compelling one at that. Like most Alzheimer’s drug in development right now, a buildup of amyloid plaque in the brain is the focal point for Prana. But, Prana Biotechnology believes these beta amyloid proteins to reach toxic levels when they react with naturally-occurring zinc and copper in brain synapses.
Solution? Return those synaptic metals to neurons before they get a chance to reach amyloid proteins. Technical, yes, but the bottom line is that the results to date are encouraging.
Just bear in mind this is largely an all-or-nothing bet on the drug, though PRAN stock could rally nicely leading up to its D-Day approval.
Like Sagent Pharmaceuticals, Momenta Pharmaceuticals (MNTA) is a generic drugmaker. And also like Sagent, priced at $16.14 per share, MNTA stock is easily put into the cheap stocks category.
Unlike Sagent, however, Momenta Pharmaceuticals isn’t profitable, hasn’t been since 2011 and probably won’t be anytime in the foreseeable future.
So what makes MNTA stock one of the more buy-able cheap stocks in this sector? Because Momenta isn’t your run-of-the-mill generic pharmaceutical company. The drugmaker is at the head of the class when it comes to making generic biosimilars… generic versions of complex drugs that are derived from living organisms. It’s not an easy thing to do, and competition within the arena (generic or not) can be fierce.
But, given the pharma industry’s migration towards this more potent class of medicines, MNTA stock has plenty working in its favor for the long haul.
Think Arena Pharmaceuticals (ARNA) and VIVUS (VVUS) used up all weight loss drug enthusiasm when the two companies won approval for Belviq and Qsymia, respectively, back in 2012?
VIVUS and Arena didn’t stall all that thunder, saving some for Orexigen Therapeutics (OREX) when its weight loss drug Contrave gets put “in play” in front of a projected FDA-decision date of June 10th, 2014.
The being said, investors would be wise to learn some key lessons being offered by the behavior of also-once-cheap stocks VVUS and ARNA leading up to their respective approvals. Any of their bullishness that was going to be priced in came in the few weeks leading up to their respective FDA approvals. Immediately after their approvals, both stocks started to deflate, and have yet to revisit their per-approval peaks.
Still, for the nimble who know when to get out, OREX is one of the few cheap stocks worth a closer look.
Finally, though the price of $7.60 clearly qualifies it as one pf the cheapest of the cheap stocks out there in the pharmaceutical world, that’s not the reason Sucampo Pharmaceuticals (SCMP) may be worth a look here. It’s the 30% slide we’ve seen SCMP stock suffer since peaking in mid-January. It’s not a pullback that’s bound to go unchallenged by the bulls.
But what, pray tell, sparks a 30% dip in the first place? In the case of Sucampo Pharmaceuticals, the 60% rally leading up to that peak may have had a lot to do with it.
The stock went nuts beginning in mid-November on the heels of then-impending news of a the beginning of the Phase 3 trial of pediatric constipation drug lubiprostone and then the onset of Phase 2 trials of a lumbar spinal stenosis.
While those two trials are compelling developments, the size of the near-term gain was just too much, too fast. The market’s taken all the profits it needed to since mid-January, however, and SCMP is now priced appropriately – and attractively – again as one of only a few truly great cheap stocks in the pharmaceutical industry.
As of this writing, James Brumley did not hold a position in any of the aforementioned securities.
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