Given all the talk about the pandemic, the delta variant and everything else, it would be easy to believe that pharmaceutical stocks are doing well this year. But the fact is, according to the benchmark S&P Pharmaceuticals Select Industry Index, the sector is down almost 9% year-to-date.
That compares to a solid 17% return for the S&P 500 YTD. That means pharma is a significant relative underperformer.
Whether you’re a contrarian or not, this kind of underperformance means there are opportunities here that have been overlooked during the tech stock run and now the sector rotation as Q4 gets underway.
These pharma stocks aren’t headline names, but they’re solid companies that are well priced. They also have some serious upside potential now with the broader sector is likely to get more attention in the quarters ahead. Some of these are low-priced small caps, so make sure to buy two or three and buy-in over time since they can be volatile. Notably, each of these pharmaceutical stocks has an A-rating in my Portfolio Grader.
- United Therapeutics (NASDAQ:UTHR)
- Mannatech (NASDAQ:MTEX)
- Oramed Pharmaceuticals (NASDAQ:ORMP)
- Innoviva (NASDAQ:INVA)
- Veru (NASDAQ:VERU)
- Clearside Biomedical (NASDAQ:CLSD)
- Cybin (NYSEAMERICAN:CYBN)
Pharmaceutical Stocks: United Therapeutics (UTHR)
One of the big decisions pharmaceutical stocks usually have to confront is the drug delivery method they want to pursue. Each has its own drawbacks and advantages. But most companies tend to use a pill or an injection to get the drugs to their proper place, doing what they’re designed to do.
UTHR actually has a number of different methods at its disposal for its medications. Most of its products focus on pulmonary hypertension, or idiopathic pulmonary hypertension. It offers oral, inhaled, infused or even transplant therapies. It also makes devices to deliver its inhaled and transplant therapies.
A handful of its drugs and devices are in Phase 3 studies, which means it has a majority of the difficult approval territory. With an $8 billion market cap, it has the money to get its products to the finish line. It’s already delivering solid earnings.
UTHR stock has gained 21% YTD and its current price-to-earnings ratio is just 18x.
Aloe. That’s at the core of MTEX’s business model. Given the amount of skepticism the public has shown when it comes to vaccines, it’s also an indicator about how they feel about pharmaceuticals in general.
MTEX has the natural side covered. From integrated health to beauty to weight loss/fitness to beauty products, MTEX has products that fit the bill.
While not exactly a classic pharmaceutical stock, it has focused on getting the most out of aloe vera since 1993. With a market cap of just $63 million it remains a niche player. Also of note is the fact that the company is a multi-level marketing company. That means members recruit new members to sell products, like Amway or Mary Kay.
Given the turn to natural alternatives to chemistry based drugs, MTEX is gaining in popularity. The stock is up 78% YTD, yet has a current P/E of 10x and delivers a 2.4% dividend.
Pharmaceutical Stocks: Oramed Pharmaceuticals (ORMP)
As I mentioned earlier, drug delivery is a big deal when it comes to pharmaceutical stocks. For example, if you’re a Type 1 diabetic, you have to inject yourself throughout the day, given your blood glucose levels. And there are other chronic diseases where the same holds true.
ORMP focuses its energies on developing oral medications to replace other delivery methods. Its current focus is insulin pills for Type 1 and Type 2 diabetes. But its delivery platform, POD (for protein oral delivery), is also looking into replacing other protein-based injections.
The stock has done well, which should help support its research and development efforts. ORMP stock is up 371% YTD and is starting to attract more attention with a market cap hitting $726 million. This looks like an ideal acquisition for one of the major pharmaceutical stocks looking to add to its diabetes alternatives or for its delivery research.
Imagine living among pharmaceutical stocks yet not having to worry about developing drugs. That’s where INVA comes in. It focuses its model on royalty management of drugs that are already developed in the portfolios of large drug companies and then it strategizes on how to sell them.
Big pharma companies have enormous portfolios of drugs that sometimes don’t get much attention because they don’t have the kind of potential sales that move the needle for a big pharma.
That’s where INVA comes in. It finds drugs that fit a market profile and then grows those markets. It then splits the royalties with the drug maker. This model keeps R&D costs low and margins high. Currently INVA has three respiratory drugs that it’s managing from a major pharma.
INVA stock is up 35% YTD, yet it still sells at a bargain P/E below 7x. And it has a market cap of over $1 billion, so it has a solid base.
Pharmaceutical Stocks: Veru (VERU)
VERU’s main focus is on biopharmaceutical oncology drugs, focusing on prostate cancer and breast cancer. It has three drugs in development on these fronts.
But it also has FC2, a female-controlled condom that prevents STDs as well as pregnancies. It’s approved by the U.S. Food and Drug Administration as well as the World Health Organization. And it’s authorized for distribution by the UN and U.S. agencies.
What FC2 loses in big margins it gains in volume. And that means it can fund its biopharma drug trials without going deeper in debt. It’s a smart model. And one of its breast cancer candidates got positive results in December 2020, and it’s very busy in trials with a number of different applications with other candidates.
VERU stock is up 4% YTD, but it has had a much larger run over the past 12 months (a 223% gain). This is a good time to get in, as it starts to consolidate.
Clearside Biomedical (CLSD)
Macular edema (ME) is a build up of fluid in the macula, which is in the center of the retina. The fluid build up eventually distorts vision. While the condition is treatable and not particularly serious for most people, diabetic macular edema (DME) can cause blindness.
And given the rising rates of Americans with diabetes, this is becoming a significant issue. CLSD has a new treatment for managing ME and DME. It’s developing a new drug and a new delivery device to aid in ME treatment.
If the second infrastructure bill gets passed, it could be a very big win for CLSD since part of the bill will fund Medicare and Medicaid coverage for eye treatments like CLSDs’ products.
CLSD stock has gained 70% YTD and has a market cap of $357 million. But its products are still undergoing FDA trials.
Pharmaceutical Stocks: Cybin (CYBN)
With a market cap of a “whopping” $1.5 million, CYBN is the smallest of the pharmaceutical stocks on this list. The company is only 5 years old, which explains some of that.
But CYBN is in a very new space … head space that is. You see, this Canada-based company is developing psychedelic therapeutics to manage mental illness, addiction and eating disorders. Currently it has four active drug programs underway and more than 50 preclinical studies filed with the FDA. The company is run by management team with a solid track record.
This is a very new avenue of research and development. Historically, funding was very difficult for this class of drugs because they were/are illegal substances, so federal, state and local money wasn’t available. But now, like cannabis laws, this is changing rapidly.
CYBN stock is up 55% YTD and more than 200% in the past 12 months. But it’s a tiny company, so be aware that it’s going to be volatile.
On the date of publication, Louis Navellier has a position in UTHR in this article. Louis Navellier did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The InvestorPlace Research Staff member primarily responsible for this article did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier, who has been called “one of the most important money managers of our time,” has broken the silence in this shocking “tell all” video… exposing one of the most shocking events in our country’s history… and the one move every American needs to make today.