Biotechnology and healthcare stocks are by no means taking the market by storm, with both groups down big over the last year. The broad Health Care SPDR (ETF) (XLV) is off 6% versus just 2% for the broader S&P 500, and the iShares NASDAQ Biotechnology Index (ETF) (IBB) is down a whopping 26%.
However, the iShares NASDAQ Biotechnology Index (ETF) (IBB) is up 8% in just the past couple of weeks, and the XLV is still recovering from its February lows.
Fact is there are a handful of biotech and healthcare stocks that are getting too cheap to ignore — maybe not by normal market standards, of course, but most certainly when you consider growth prospects and recent stock loss.
Let’s take a look at 10 such healthcare stocks with near-term catalysts that should spark significant gains, thereby performing much better in the back half of 2016.
10 Best Healthcare Stocks to Buy: Walgreens Boots Alliance (WBA)
Walgreens Boots Alliance Inc (WBA) is down 10% this year, and much of that relates to a considerable amount of uncertainty with how to value the company.
After its acquisition of Alliance Boots, Walgreens’ look has certainly changed, and it’s about to get an even bigger makeover after Rite Aid Corporation’s (RAD) retail pharmacies and pharmacy benefit management business is absorbed.
Nevertheless, the Rite Aid acquisition later this year is certainly a catalyst. WBA is already forecasting up to $4.55 per share in earnings for this fiscal year, meaning it trades at less than 17 times this year’s EPS. With Walgreens’ U.S. retail pharmacy, wholesale and international retail pharmacy business all achieving mid-single digit comparable sales growth, WBA is a stock that should certainly find favor with the market during the latter half of 2016.
Not to mention, Rite Aid is going to add 20% top-line growth to WBA, and Walgreens could very well achieve 20%-plus EPS growth next year.
When you consider this likely outlook, WBA stock becomes even more attractive.
10 Best Healthcare Stocks to Buy: Regeneron Pharmaceuticals (REGN)
Regeneron Pharmaceuticals Inc (REGN) stock is down almost 30% this year, although its main drug Eylea is expected to see worldwide sales growth upwards of 25% this year and surpass the $5 billion mark.
However, that’s not necessarily the catalyst that will send REGN flying.
Instead, data from its Odyssey Outcomes trial will be unveiled later this year. If successful, REGN will effectively prove that its bad-cholesterol-lowering drug Praluent can also save lives, and insurers who have been resistant to cover the drug’s high price will have no choice.
At that point, Praluent will be well on its way to realizing the billions in annual sales that analysts expected prior to FDA approval.
Given that REGN has turned everything it touches to gold for the last decade, I tend to give its Odyssey Outcomes trial the benefit of doubt.
10 Best Healthcare Stocks to Buy: Acadia Pharmaceuticals (ACAD)
With more than 1 million who suffer from Parkinson’s disease, and with Acadia offering a breakthrough-designated anti-psychotic that is effective without the harsh side effects, the stage is set for Nuplazid sales to be quite remarkable.
Plus, Acadia is pricing Nuplazid twice as high as shareholders expected, so ACAD stock has set the stake for big gains.
While ACAD is up more than 80% during the past three months, the stock is still down more than 25% from its 52-week high. Thus, it has some ground to make up for investors who want to buy ahead of the drug launch.
10 Best Healthcare Stocks to Buy: Celldex Therapeutics (CLDX)
Celldex Therapeutics, Inc. (CLDX) stock is down 85% over the past year, and has gone from a near $4 billion company to just $440 million during that time.
Yes, its breakthrough brain cancer drug Rintega shocked investors when it failed in its Phase 3 trial, and now CLDX has lost its favor with the market. However, investors must not forget that back in early 2012, CLDX began a two-year march from $3 to more than $30 based solely on the clinical performance of its other late-stage drug, Glembatumumab vedotin, which treats a mutated late-stage form of breast cancer.
Investors have seemingly forgotten this performance due to the disappointment of Rintega.
Thankfully, CLDX will present data later this year from an ongoing trial, and when that happens, investors should quickly forget this more recent disappointment.
10 Best Healthcare Stocks to Buy: Relypsa Inc (RLYP)
Relypsa Inc (RLYP) is down 44% this year, and most of that loss is a result of the M&A rumors and speculation that surrounds RLYP.
Fact is that most investors thought RLYP would have been acquired by now. The company has a recently approved drug that treats excessive potassium in the blood. Last year, AstraZeneca plc (ADR) (AZN) bought ZS Pharma for $2.7 billion to gain rights to its competing drug.
Considering that RLYP’s market capitalization is now down to $770 million, and it already has an approved drug, it is just a matter of time before someone buys Relypsa.
If not, it should rally with biotech stocks as investors realize the discount to what AstraZeneca paid for a competing, not-yet-approved drug.
10 Best Healthcare Stocks to Buy: Juno Therapeutics (JUNO)
Juno Therapeutics Inc (JUNO) has fallen 27% over the last six months, and while still expensive with a market capitalization of $4 billion, investors must remember that Juno is the future of treating cancer.
JUNO has a partnership with Celgene Corporation (CELG) and is the face of CAR-T. Much like anti-PD1s about five years ago, CAR-T is the latest, transcendent treatment approach for fighting cancer, and Juno is leading the way.
While $4 billion is a lot to pay for a company that is still four, maybe five years from commercializing one of its products, this is a company that might very well have $10 billion to $15 billion of peak worldwide revenue in its pipeline right now.
Given that Juno has Celgene to help with the development and worldwide commercialization of drugs, and considering that JUNO is about 35% off its high, investors should feel good about both the entry point and the stock’s long-term prospects.
10 Best Healthcare Stocks to Buy: Allergan (AGN)
Allergan plc Ordinary Shares (AGN) is not a company that most investors think of as must-buys with the potential for great appreciation.
However, it is a company that has high-single-digit, low-double-digit revenue growth, has fallen 26% over the last six months and trades at just 13 times next year’s EPS.
Allergan — which boasts products such as Botox, Enablex and Restasis — is a classic example of a solid company’s stock falling because of the industry in which it operates.
Therefore, if the IBB continues to trade higher, and if markets continue to recover, AGN stock should thereby be one of the biggest beneficiaries.
10 Best Healthcare Stocks to Buy: Gilead Sciences (GILD)
The market wants Gilead Sciences, Inc. (GILD) to put its money to work and acquire the next Pharmacyclics.
While many biotechnology companies grow from pipeline development, GILD has always been more about identifying value, and acquiring growth. The fact that Gilead has chosen to return capital in the form of share buybacks versus big acquisitions, however, suggests that the biotech does not see a great deal of value for M&A.
Regardless, GILD stock is not going to trade at big multiples without a multibillion-dollar acquisition. However, it is not realistic to assume that Gilead stock is worth 7x forward earnings, or that it will stay at these levels.
Hence, if the industry as a whole starts to appreciate, expect GILD stock to lead the charge as bargain hunters are drawn to its valuation.
10 Best Healthcare Stocks to Buy: Amgen (AMGN)
Amgen, Inc. (AMGN) is a company and stock that is much like AGN. It trades at a similar multiple, is a similar size and has similar growth.
However, one thing that separates AMGN from most other biotechs is that it is not driven by one single product, or category of products. Yes, Enbrel is its biggest and fastest-growing drug, but it accounted for just 25% of total sales last quarter. Most biotechs get 75% of their revenue from a single product.
AMGN relies on about a dozen products and has a robust pipeline that should allow it to grow at a mid-single-digit growth for many years to come.
When you can get this degree of diversity and growth at 13x forward earnings, you take it!
10 Best Healthcare Stocks to Buy: Valeant Pharmaceuticals (VRX)
Valeant Pharmaceuticals, Inc. (VRX) is down 90% over the last year, and while shares are still hovering near 52-week lows, there are quite a few reasons to think its bad fortunes will soon change.
First, short interest has decreased by 4 million shares over the last month — a reflection that even shorts don’t see the value in betting on additional downside.
The reason is because of its valuation.
VRX now trades at just 2.5x this year’s expected EPS. Even if you don’t buy Valeant’s EPS outlook, the company will still top $2 billion in free cash flow this year. That means it trades at 5x FCF!
At the end of the day, VRX is cheap, and despite all it has gone through, it is still a growing business that earns enough profit to repay its debt over time.
Therefore, it looks like a good time to bet on Valeant.
As of this writing, Brian Nichols was long ACAD, REGN, VRX and WBA.