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All Contents © 2020The Kiplinger Washington Editors
By Harriet Lefton, Contributing Writer
| July 27, 2018
If you are looking to diversify your portfolio away from trade-war jitters and earnings volatility, consider the highly lucrative health care sector.
Most of the sector’s companies don’t fall under the tariffs being threatened on all sides. Indeed, the health care sector – as measured by the Health Care Select Sector SPDR (XLV) – is the third best-performing sector so far in 2018, behind technology and consumer discretionary stocks. From a breadth perspective, health care trailed only technology as of mid-July, with 67% of its components posting gains since the start of the year.
Another attractive feature is health care’s “pop” potential – prices can surge on the back of positive clinical trial data or key regulatory approvals.
However, prices can plunge just as quickly if data or decisions disappoint. That’s why investing in the health care sector requires some savvy analysis first. TipRanks market data can help, as it allows you to tune into the experts’ takes.
Here are seven promising health care stocks to buy, according to Wall Street’s pros. Each of these stocks has a “Buy” or “Strong Buy” analyst consensus rating and juicy upside potential, with analysts believing some could double or more.
Data is as of July 26, 2018. Consensus price targets and ratings based on “Best Performing” analysts. Stocks are listed in alphabetical order.
Market value: $579.4 million
TipRanks consensus price target: $21.25 (100% upside potential)
TipRanks consensus rating: Strong Buy (See Details)
Akebia Therapeutics (AKBA, $10.63) is on the cusp of big growth. The company has just announced plans to merge with Keryx Biopharmaceuticals (KERX). Both Akebia and Keryx are developing drugs for adults living with iron deficiency anemia and chronic kidney disease. Indeed, Keryx boasts the only oral treatment option available today, known as Auryxia. Meanwhile, Akebia’s vadadustat is currently in Phase 3 clinical trials.
“Bringing together the commercial infrastructure of Keryx along with the R&D capabilities of Akebia is a sound strategic decision in our view, especially given the complementary nature of both company’s products,” writes top Mizuho Securities analyst Difei Yang (view Yang’s profile and recommendations). She has a $21 price target on the stock, suggesting share prices can roughly double.
Similarly, Piper Jaffray’s Christopher Raymond believes we are now looking at a “significant opportunity” to own Akebia before the “real potential of a nephrology powerhouse with both Auryxia and vadadustat (becomes) more apparent.” This is especially true now that new survey data shows that Auryxia “has not just turned a corner, but is really on quite a roll, both in terms of the drug’s perception and its market share dynamics.”
His $22 price target indicates massive upside potential of 107%.
Market value: $209.4 million
TipRanks consensus price target: $38 (262% upside potential)
TipRanks consensus rating: Moderate Buy (See Details)
If you are looking for a stock with extreme upside potential, Allena Pharmaceuticals (ALNA, $10.50) may do the trick.
Top Wedbush analyst Liana Moussatos (view Moussatos’ profile and recommendations) has just reiterated her “Buy” rating on Allena Pharmaceuticals, giving it a $38 price target.
Allena Pharmaceuticals is looking to develop oral enzyme therapeutics to treat patients with rare and severe metabolic disorders. These can cause kidney stones, potentially leading to chronic kidney disease or renal disease. Its lead product candidate is ALLN-177 for hyperoxaluria, which currently has no approved therapy options. For ALLN-177 in enteric hyperoxaluria, Moussatos projects peak worldwide gross sales of $2.2 billion in 2027.
“With a strong cash position, on-track execution of clinical trials by management and a material clinical catalyst in 2018, we view ALNA shares as attractive investment” Moussatos writes. She is looking for two key milestones for ALLN-177 in the second half of this year: namely, the initiation of the Phase 3 URIROX-2 trial, and interim results from the Phase 2 basket trial, Study 206.
Market value: $220.4 million
TipRanks consensus price target: $38.60 (171% upside potential)
Is Galmed Pharmaceuticals (GLMD, $14.24) the surprise success story of 2018? In the last three months, this stock has exploded by nearly 130%. The catalyst: the release of much-anticipated one-year biopsy results for NASH (non-alcoholic steatohepatitis, a type of fatty liver disease) for its lead drug Aramchol.
“The Sleeper NASH Readout of 2018 Has Awoken; Heading to Phase 3” applauded to H.C. Wainwright analyst Ed Arce (view Arce’s profile and recommendations) post-results. “We view Aramchol’s result on ‘NASH resolution without worsening of fibrosis’ as unequivocally positive,” Arce writes. Most impressively, safety remains “squeaky clean,” and this sets Aramchol apart from many other NASH therapeutic candidates. He now sees the critical Phase 3 initiation trials taking place in early 2019.
Arce ramped up his price target to a bullish $43, implying the stock could triple from current prices. He increased his probability-of-success estimate on NASH from 30% in the U.S. to 55%, and from 20% in the European Union to 40%.
Market value: $2.2 billion
TipRanks consensus price target: $85.00 (98% upside potential)
Global Blood Therapeutics (GBT, $42.95) not only has nine back-to-back buy ratings, but the average analyst price target implies a near-doubler from current prices.
GBT is developing its late-stage product candidate, voxelotor, for the treatment of sickle cell disease (SCD). Top-rated Oppenheimer analyst Mark Breidenbach (view Breidenbach’s profile and recommendations) has recently selected GBT as his Top Biotech Stock for July-August. He writes, “We rate GBT Outperform based on our optimism that the company’s Phase 3 asset, voxelotor, could find regulatory and commercial success in sickle cell disease (SCD) and may substantially improve the standard of care in this indication.”
He also says that, based on recent M&A activity and interest in SCD, GBT could find itself a takeout target this year, which would push shares substantially higher.
Market value: $7.0 billion
TipRanks consensus price target: $221.25 (45% upside potential)
Biopharma stock Sage Therapeutics (SAGE, $152.64) is a firm analyst favorite. In the past three months, Sage has received eight buy ratings and no hold or sell ratings. The company is committed to developing novel medicines to transform the lives of patients with central nervous system (CNS) disorders. This includes widespread disorders like postpartum depression (PPD), bipolar depression and insomnia.
Canaccord Genuity’s Sumant Kulkarni (view Kulkarni’s profile and recommendations) is excited about the potential of SAGE-217 for major depressive disorder (MDD). “We view SAGE-217 as a potential game changer if the company successfully demonstrates that depression can be treated episodically vs. current practice that relies on chronic treatment” writes Kulkarni.
He adds: “While postpartum depression presents unmet need, we continue to believe SAGE-217 for the MDD indication is the main stock driver.” Nonetheless he predicts that “the availability of data in the ongoing pivotal PPD trial for SAGE-217 in (the fourth quarter of 2018) as a larger stock catalyst.”
Kulkarni has just ramped up his success probability for SAGE-217 in both PPD and MMD from 50% to 55%. His price target has grown, too, from $210 to $220, suggesting 44% upside potential.
Market value: $78.2 million
TipRanks consensus price target: $5.83 (241% upside potential)
Aventis spinoff Scynexis (SCYX, $1.71) is a riskier stock than the rest of these because of its low nominal price – at less than $2 per share, SCYX falls beyond most thresholds for institutional buying, and it’s close to the $1 level that the Nasdaq requires to remain on the exchange.
That said, more aggressive investors should be heartened by the positive analyst activity around Scynexis recently. Three analysts have published buy-equivalent ratings on the stock over the past few weeks.
Needham Group’s Alan Carr (view Carr’s profile and recommendations) recently upgraded the stock from “Hold” to “Buy.” His new bullish rating comes with a $5 price target, suggesting prices can spike 190% from current levels.
So what has prompted this shift in sentiment? Well, the company has just announced positive results from a Phase 2b trial of its lead drug, oral SCY-078 for serious fungal infections. This has caught Carr’s attention for two reasons. First of all “GI tolerability appears acceptable, a key concern from previous Phase 2a trial.” And secondly, he notes that current treatment options leave a lot to be desired, which bodes well for the drug’s potential demand levels.
He writes: “We reported results of our ObGyn survey in a preview note indicating strong interest in a new oral agent. Roughly 15% of patients return due to treatment failure and fluconazole is currently the only oral option available.” As for next steps, Scynexis plans to initiate two identical Phase 3 trials testing how the drug performs vs placebo, by the end of 2018.
Carr is assuming a new drug application (NDA) submission in the second half of 2020, and a launch in 2021.
Market value: $166.3 million
TipRanks consensus price target: $30.67 (335% upside potential)
Cutting-edge biotech company Syndax Pharmaceuticals (SNDX, $7.05) is developing an innovative pipeline of combination therapies in multiple cancer indications. And right now, Wall Street thinks this stock is primed to triple. One potential catalyst: Critical data from Phase 3 trials for a breast-cancer treatment is due in the third quarter.
Most recently, five-star HC Wainwright analyst Edward White (view White’s profile and recommendations) initiated coverage of Syndax with a $30 price target (303% upside potential). He sees the company’s lead product Entinostat as offering a “promising syntax” for cancer treatments. The drug functions as a small-molecule inhibitor that has direct effects on both cancer cells and immunosuppressive cells, potentially enhancing the body’s immune response to tumors.
Several bullish factors are already at play, including the drug’s long half-life (which potentially reduces dosing frequency and adverse events) and the fact that the FDA has already ascribed Breakthrough Therapy designation following positive Phase 2 trial results. The bottom line for White: SNDX remains a “compelling investment” at current levels.
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