With its latest variant (Omicron) spreading, it seems Covid-19 will continue to play a major role in world events in 2022, just like it did in 2020, and in 2021. With this, pandemic-related drug stocks will likely remain hot. Think vaccine stocks, such as Moderna (NASDAQ:MRNA) and Pfizer (NYSE:PFE), or even stocks in companies coming out with Covid-19 treatments. For example, Merck (NYSE:MRK), with its Covid pill, although recent analysis calls into question its effectiveness.
But the biggest opportunity in this sector may not be with stocks sporting a “Covid catalyst.” If anything, it may be too late to dive into these plays, as much of the upside from stopping the spread/treating the virus may already be baked-in.
In contrast, there are many healthcare stocks where “priced for perfection” may not be such an issue. Names that could produce greater returns over the next twelve months. For some, game-changing progress with drugs in their pipelines may result in big moves. For others, a shift in sentiment could send them moving in the right direction after their poor performance this year.
So, looking beyond any “Covid catalyst” stocks, which drug stocks should you consider? Take a look at these seven, a mix of growth, value and moonshot plays:
- Halozyme Therapeutics (NASDAQ:HALO)
- Longeveron (NASDAQ:LGVN)
- Prothena (NASDAQ:PRTA)
- Cassava Sciences (NASDAQ:SAVA)
- Sesen Bio (NASDAQ:SESN)
- Takeda Pharmaceutical (NYSE:TAK)
- Teva Pharmaceutical Industries (NYSE:TEVA)
Drug Stocks for 2022: Halozyme Therapeutics (HALO)
Already in the revenue stage, Halozyme Therapeutics is a drug delivery platform company. Its main platform, Enhanze, can be used to enable subcutaneous delivery of typically IV-delivered drugs.
With the advantages offered by Enhanze, it has found big success licensing this technology to other biopharma companies. So far, it’s formed 11 partnerships, covering 61 different treatments. Per company projections, annual royalty revenue could soar to as much as $1 billion by 2027. Pretty impressive, given Halozyme’s total revenue over the past twelve months is around $463 million.
However, given its main source of revenue coming from a patent that expires in 2027, investors have given the company a low valuation. At today’s prices, HALO stock sports a forward price-to-earnings (P/E) ratio of 18.5x. Then again, CEO Helen Torley and the management team is fully aware of this revenue durability issue, as seen in the company’s most recent conference call. Between co-formulation patents, and corporation relation patent opportunities, the company may be able to extend the life of its flagship technology.
In short, this perception that it’s a “melting ice cube” may work to your advantage. Buying now, ahead of developments in 2022 that secure Halozyme’s prospects could enable the stock, at around $33.40 per share today, to make its way back above $50 per share.
After spiking in price a few weeks ago, you may believe the ship has sailed with LGVN stock. As my InvestorPlace colleague Chris MacDonald wrote on Nov 24, shares in this clinical stage biotech company skyrocketed on news of the U.S. Food and Drug Administration (FDA) giving its key drug, Lomacel-B, a Rare Pediatric Disease (RPD) designation.
Given this improves how soon Longeveron can bring this drug to market, it makes perfect sense why the stock zoomed from around $3 per share, to as much as $45 per share. Although the buzz around it has cooled, with the stock changing hands for around $20 per share today, I wouldn’t say the opportunity here has come and gone.
Further news related to it bringing Lomacel-B to market could mean further spikes in the price of LGVN stock. Does that mean it’s now less risky? Not so fast. Far from it, actually. Any hiccup/misstep with further clinical trials will send it back to single-digit prices.
But if you’re looking for a moonshot play, where there’s more than just meme stock mania on its side, this may be one such opportunity. While you may want to wait for further weakness, definitely keep this drug stock on your radar.
Drug Stocks for 2022: Prothena (PRTA)
A late-stage clinical biotech company, Prothena focuses on developing drugs to treat neurodegenerative diseases. As a Seeking Alpha commentator recently discused, it may be getting close to approval/commercialization of one of its key candidates, ALS treatment Birtamimab.
However, what could really move the needle for PRTA stock is progress with some of the more high-potential candidates in its pipeline. Partnered with Roche (OTCMKTS:RHHBY), it has a Parkinson’s candidate currently in Phase 2 trials. Along with this, Prothena’s pipeline includes two Alzheimer’s treatments. One is in Phase 1 trials and the other is in the preclinical stage.
As our Louis Navellier has pointed out, this stock has soared, primarily due to the increased attention being paid to Alzheimers stocks, like what we’ve seen play out with Cassava (more below). However, this increased attention and subsequent run-up in the PRTA’s stock price (around 310% year-to-date) shouldn’t be seen as a reason to skip out on it.
With the potential of its deep pipeline, it has a great chance of delivering another year of solid returns. Keeping in mind its high risk nature, you may still want to buy it. Especially after its extended slide in price, from as much as $79.75 per share a few months back, to around $49 per share today.
Cassava Sciences (SAVA)
SAVA stock has made plenty of big moves in 2021. Shares have soared over 606% year-to-date thanks to excitement over the prospects of its Simulfilam Alzheimers drug. At the same time, its down massively from late Summer, when allegations of data manipulation sank it from as much as $146.16 per share, to the low $40s per share.
The jury’s still out whether there’s substance to the data integrity concerns. CEO Remi Barbier has been vocal in fighting back against them, claiming they are the product of a “short and distort” campaign from short-sellers. With this, Cassava is moving ahead with bringing its flagship drug candidate to market. Simulfilam is now in Phase 3 clinical trials.
However, I wouldn’t say the company is out of the woods. The Securities and Exchange Commission (SEC) is looking into the data manipulation matter. So too, is the National Institutes of Health (NIH). As a result, SAVA stock, after spiking in early November on renewed hopes this hurdle would pass, has since fallen back to around $48 per share.
Much like with other drug stocks discussed above and below, this fear, uncertainty and doubt (FUD) may work in your favor. With massive upside potential if the data manipulation claims are proven false, and Simulfilam gets eventual FDA approval, you may want to consider entering a small position, following its recent weakness.
Drug Stocks for 2022: Sesen Bio (SESN)
The past few months have been tough for investors in SESN stock. Earlier this year, shares were trending higher on hopes its bladder cancer drug candidate Vicineum would get FDA approval. Instead, the FDA instead flat out rejected it in August.
It dropped 50% right after this news. After that, it continued to drop, and has only recently bottomed out. Yet while investors who got burned buying this before the bad news may want to move on, those new to the situation may want to give it a closer look. Why? Vicineum may not be out of the running when it comes to getting the go-ahead from the FDA.
After meeting with the regulatory agency, Sesen Bio now has another chance to bring this treatment to market. If things continue to move along in the company’s favor, shares could continue to make a recovery.
That said, keep in mind that things aren’t guaranteed to keep moving in the company’s favor. These latest talks may not result in a resubmittal for its flagship candidate, much less approval. Nevertheless, investors looking for moonshot plays may still want to buy. Possible upside vastly exceeds further downside risk.
Takeda Pharmaceutical (TAK)
After talking about several speculative drug stocks, let’s look at one that may be of interest to value investors. Shares in Japan-based Takeda have been under pressure since October, after it halted clinical trials for an experimental sleep disorder treatment due to safety concerns.
However, it’s possible the market overreacted to this news. TAK stock went from around $16, to between $13 and $14 per share. Although recent hiccups may not be the only setback the pharma giant has experienced recently, there have been some bright spots. For example, news of approval for another candidate, which treats an infection commonly experienced following an organ transplant, could be a boon for TAK stock.
Reasonably priced, Takeda trades for 24.7x earnings this fiscal year (ending March 2022), and 16.2x projected earnings for FY23. It also sports a 6% forward dividend yield. You can get paid while you wait for the recent setbacks to pass.
Add in its recently announced share repurchase plan, and TAK stock has big potential to bounce back in the coming year. I wouldn’t expect an epic rebound, given this large cap stock has mostly traded between $18 and $20 per share in recent years. Still, if you’re looking for a less risky healthcare play that could result in solid returns, this may be a great option.
Drug Stocks for 2022: Teva Pharmaceutical Industries (TEVA)
Teva, an Israel-based generic drug maker, has a lot of positives in its corner. For starters, it’s cheap, trading for just 3x projected earnings for 2022. It recently beat a big opioid case in California, and as our Tezcan Gecgil discussed back in July, it’s a Warren Buffett stock. The Oracle of Omaha’s Berkshire Hathaway (NYSE:BRK.A,NYSE:BRK.B) owns around 42.8 million of its 1.1 billion outstanding shares.
Unfortunately, none of this has done much to change Mr. Market’s mind about the stock. It’s slowly fallen in price throughout the year. Trading for around $8 per share today, it started off 2021 trading for around $10.50 per share. Blame this on underwhelming quarterly results. Worse yet, 2022 could be challenging as well.
Per an analyst downgrade from Raymond James’ Elliot Wilbur, the company could continue to fall short of expectations. So, with mediocre recent performance, and murky near-term prospects, why is it a buy? The longer-term picture remains promising.
After implementing its aggressive cost cutting program, the company now has plenty of cash flow to pare down the debt on its highly leveraged balance sheet. Over time, this will increase its underlying net value of the company. This could help counter the company’s growth issues and, in turn, help this value stock from turning into a value trap.
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On the date of publication, Thomas Niel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Thomas Niel, contributor for InvestorPlace.com, has been writing single-stock analysis for web-based publications since 2016.