Thursday, April 25, 2024
Stocks To Buy

7 Undervalued Biotech Stocks to Buy Before They Boom

Although the sector can be quite volatile, these undervalued biotech stocks to buy offer a compelling narrative for investors. Fundamentally, the underlying narrative focuses on addressing the critical (and sometimes under-met) needs of patients suffering from various conditions and diseases. Win or lose, participants will — assuming no underlying fraud issues — be putting their money to good use.

Another factor that benefits these undervalued biotech stocks is that even in failure, the sector itself offers much relevance. For instance, those enterprises seeking therapeutics for neurologic disorders know what approaches not to pursue based on others’ disappointing results. Of course, the specter of disaster makes this space incredibly volatile, necessitating extra due diligence.

Still, one could improve the odds by targeting robust names that just don’t attract much attention (yet). Below are seven compelling undervalued biotech stocks to buy before they boom.

Undervalued Biotech Stocks: Pfizer (PFE)

Although Pfizer (NYSE:PFE) garnered intense momentum due to its messenger-RNA-based vaccine targeting the coronavirus, fading fears of Covid-19 reduced the company’s relevancy. On a year-to-date basis, PFE is down 10%. Still, the performance in the back half of this year has been much improved, just a bit under parity. And in the trailing month, PFE gained almost 3%.

Fundamentally, it’s possible that more investors have recognized Pfizer as one of the most undervalued biotech stocks to buy. Currently, Wall Street prices PFE shares at 9.8-times trailing-12-month (TTM) earnings, contrasting against the sector’s price-earnings ratio of 21.3 times. Also, PFE trades at 10.3 times forward earnings. For context, the sector’s median forward PE ratio is just under 15 times.

In addition, Pfizer enjoys a stable balance sheet marked by an Altman Z-Score of 3.82, reflecting low bankruptcy risk. Both its three-year revenue growth rate (27.8%) and net margin (29.8%) rank among the industry’s top echelon. Therefore, PFE is a solid bet among undervalued biotech stocks to buy.

Regeneron Pharmaceuticals (REGN)

Another name that sparked massive interest during the early phase of the Covid-19 crisis, Regeneron Pharmaceuticals (NASDAQ:REGN) bounced higher based on its antibody cocktail. However, these days, the company focuses on other needs, such as its compelling eye disease drug. As a result, REGN shares are up nearly 14% for the year, a sharp contrast to the broader market.

Nevertheless, traditional indicators suggest that REGN represents an undervalued biotech stock to buy. Primarily, the market prices REGN at 15 times TTM earnings. Also, shares trade at 16.9 times forward earnings. Both stats rank as discounts relative to their respective industry median values.

To be fair, Gurufocus’s proprietary calculation for free market value suggests that Regeneron is fairly valued. However, I would counter that by stating that REGN offers investors significant bang for the buck. For instance, its three-year revenue growth rate stands at 47.3%, beating out over 82% of the competition. Also, its net margin is 39.2%, above 94% of the industry.

Undervalued Biotech Stocks: Incyte (INCY)

A multinational pharmaceutical firm with headquarters in Delaware and Switzerland, Incyte (NASDAQ:INCY) currently develops and manufactures prescription biopharmaceutical medications in multiple therapeutic areas including oncology, inflammation and autoimmunity. As of this writing, the company features a market capitalization of $17.7 billion. Due to its relevancies, INCY gained over 7% for the year, a strong performance relative to the S&P 500.

Despite the positive gains, INCY still ranks among the undervalued biotech stocks to buy. As of this moment, Wall Street prices INCY at 20.2 times TTM earnings. Also, shares trade at 17.7 times forward earnings. Both stats represent a discount against industry norms. As well, Gurufocus considers Incyte as modestly undervalued based on its proprietary fair market value calculations.

In addition, the company enjoys a stable balance sheet. In particular, investors should note its cash-to-debt ratio of nearly 71 times. For comparison’s sake, the industry median is only 9.4 times, which translates to Incyte beating out 72% of its peers.

Innoviva (INVA)

Headquartered in South San Francisco, California, Innoviva (NASDAQ:INVA) features a portfolio of royalties and innovative healthcare investments and assets in areas of significant unmet medical need, per its website. At the time of writing, Innoviva features a market capitalization of just over $909 million, ranking among the smaller candidates for undervalued biotech stocks to buy. Shares lost over 24% YTD. However, in the trailing month, they gained over 1%, drawing some optimism.

According to Gurufocus, INVA pings as a significantly undervalued investment based on both proprietary FMV calculations and traditional valuation indicators. For instance, its PE ratio is 4.14 times, below the industry median of 28.4 times. Also, Innoviva’s Shiller PE ratio is 11.2 times, lower than nearly 88% of biotech competitors.

Notably, though, the company brings the heat to its income statement. For instance, its three-year revenue growth rate stands at 21.8%, beating out 68.5% of its peers. During the same period, its book growth rate pinged at almost 58%, ranking well above the industry median of 3.9%. Finally, its net margin is a staggering 78.4%, blowing past 97% of its rivals.

Undervalued Biotech Stocks: Exelixis (EXEL)

Based out of Alameda, California, Exelixis (NASDAQ:EXEL) is a genomics-based drug discovery company. As of this writing, the company commands a market cap of just under $5 billion. Since the beginning of the year, EXEL dropped nearly 20% in equity value. To be fair, recent price action clouded earlier ideas of an early-stage recovery. In the trailing month, EXEL dipped more than 6%.

On the other hand, Gurufocus labels Exelixis as significantly undervalued based on its calculations for FMV. In addition, traditional indicators corroborate this assessment. For instance, the market prices EXEL at 16.2 times trailing earnings. As well, it prices shares at 10.3 times forward earnings. Both stats represent a discount compared to the biotech sector’s respective median values.

Furthermore, the company enjoys a solid balance sheet. In particular, it features an Altman Z-Score of a hair under 8, reflecting a very low risk of bankruptcy. Therefore, EXEL is a worthy inclusion among undervalued biotech stocks to buy.

Vertex Pharmaceuticals (VRTX)

Headquartered in Boston, Massachusetts, Vertex Pharmaceuticals (NASDAQ:VRTX) was one of the first biotech firms to use an explicit strategy of rational drug design rather than combinatorial chemistry, according to its public profile. One of the most relevant names in the industry, VRTX gained over 28% for the year so far.

On the surface level, Vertex might not resoundingly appear as a natural candidate for undervalued biotech stocks to buy. True, Gurufocus’s proprietary FMV calculation rates VRTX as fairly valued. However, based on traditional indicators against earnings (both trailing and forward), Vertex pings as slightly undervalued. Additionally, the company’s price-earnings-growth (PEG) ratio is a mere 0.18 times. In contrast, the sector’s median value is 1.5 times.

In addition, Vertex commands a very stable balance sheet. In particular, its Altman Z-Score is 14.5, reflecting extremely low bankruptcy risk. As well, the company’s debt-to-equity ratio is 0.06 times, favorably below the median of 0.13 times.

Undervalued Biotech Stocks: Corcept Therapeutics (CORT)

Headquartered in Menlo Park, California, Corcept Therapeutics (NASDAQ:CORT) is a pharmaceutical company engaged in the discovery, development and commercialization of drugs for the treatment of severe metabolic, psychiatric and oncologic disorders. Presently, the company commands a market cap of $2.15 billion. Since the start of the year, CORT has declined by 2%.

According to Gurufocus’s proprietary FMV calculation, Corcept rates as a modestly undervalued investment. Further, Wall Street prices CORT at under 20 times trailing earnings. As well, it prices shares at 17.3 times forward earnings. The median values are 28.4 times and 27.7 times, respectively. Also, the company’s PEG ratio pings at 0.37, below 71.5% of the competition.

Finally, Corcept enjoys stellar profitability. For instance, the company’s net margin stands at 29.4%, ranked within the top 10% of the biotech category. Also, its return on equity hit 26%, reflecting its superior capacity to convert equity financing into profits. Therefore, CORT brings intrigue to undervalued biotech stocks to buy.

On the date of publication, Josh Enomoto 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.

A former senior business analyst for Sony Electronics, Josh Enomoto has helped broker major contracts with Fortune Global 500 companies. Over the past several years, he has delivered unique, critical insights for the investment markets, as well as various other industries including legal, construction management, and healthcare.

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