7 Undervalued Biotech Stocks to Buy Before They Boom
With all the vagaries in the market these days, investors may be better served considering undervalued biotech stocks to buy. At the most basic level, biotechnology firms aim to address critical vulnerabilities in the human condition. Therefore, while the sector certainly features a profit motivation, it generally falls under a feel-good framework.
To be fair, this narrative does not mean that undervalued biotech stocks to buy feature no risk. Those companies tied to novel therapeutics necessarily absorb the dangers of clinical testing failures. As well, the present monetary environment with the Federal Reserve raising the benchmark interest rate will have some effect on the risk-on components of biotechnology firms.
However, to help mitigate some of the downside threats, investors may want to consider undervalued biotech stocks to buy. Generally, these market ideas either don’t attract the spotlight or have suffered significant cuts to their valuations. However, they maintain long-term relevance, making them possible contrarian catalysts.
If you’re ready to add a little bit of risk to your portfolio in exchange for potentially outsized rewards, take a look at these undervalued biotech stocks to buy.
Gilead Sciences (GILD)
Focusing on the research and development of various diseases including HIV/AIDS, hepatitis B, hepatitis C and influenza, Gilead Sciences (NASDAQ:GILD) represents one of the more intriguing market ideas among undervalued biotech stocks to buy. The company was one of the first to respond to the coronavirus pandemic, offering remdesivir as a candidate to address mild-to-moderate Covid-19 cases.
However, with pandemic fears fading, the narrative for Gilead Sciences softened as well. On a year-to-date (YTD) basis, GILD has dropped 8% exactly. To be fair, though, in the trailing six months, GILD has gained 8%. Still, the underlying company remains off the radar, providing an opportunity for optimistic contrarians.
According to Gurufocus.com, GILD represents a fairly valued investment. Presently, Gilead features “okay” strength in the balance sheet and a middle-of-the-road three-year revenue growth rate. Where GILD truly shines is profitability. Its net margin stands at 15%, substantially greater than the 3.7% industry median. Therefore, it makes a solid case for undervalued biotech stocks to buy.
Regeneron Pharmaceuticals (REGN)
Headquartered in Westchester County, New York, Regeneron Pharmaceuticals (NASDAQ:REGN) specializes in the production of life-changing medicines. Recently, Regeneron made headlines when it announced positive clinical results for therapeutics aimed at patients suffering from diabetic macular edema (DME) and wet age-related macular degeneration (wAMD).
Along with Gilead Sciences, Regeneron previously made international headlines when their Covid-19 therapeutics helped former President Donald Trump in the first days of his hospitalization. These days, the American public seemingly wants to put the horrible memories of Covid-19 behind it. Nevertheless, unlike Gilead, Regeneron shares trade in positive territory. For the year thus far, REGN has gained 14%.
Nevertheless, Gurufocus.com considers REGN fairly valued. Essentially, the company features strengths up and down its financial statements. For instance, Regeneron’s three-year revenue growth rate of 47.3% rates better than 82% of companies in the sector. As well, it features a net margin of 40%. If you’re looking for a less-appreciated play, REGN easily qualifies as one of the best biotech stocks to buy.
One of the most famous names in the broader pharmaceutical sector, Pfizer (NYSE:PFE) rose to prominence with its Covid-19 vaccine. Partnering with BioNTech (NASDAQ:BNTX), the two delivered a messenger-RNA-based solution to the pandemic. Naturally, the groundbreaking success of the vaccine reinvigorated the partnership to leverage the power of mRNA. In particular, the two companies are collaborating on a shingles vaccine.
However, the news did not move the market — at least not in a positive direction. And being that the market represents the ultimate arbiter, PFE finds itself in the perhaps unusual status as an undervalued biotech stock to buy. Since the start of the year, PFE finds itself down 25%. It seems almost unfair given what Pfizer brought to the world, but that’s where we are.
Of course, this dynamic boosts the case that PFE stands as one of the undervalued biotech stocks to buy. Gurufocus.com labels significantly undervalued. Like Regeneron above, Pfizer features strengths across its financial spectrum. Both key growth and profitability metrics rate among the upper echelon of the biotech space. As well, Pfizer features a solid balance sheet.
A German multinational pharmaceutical firm, Bayer (OTCMKTS:BAYRY) represents a household name, recognized the world over. In addition to its wide-ranging work toward improving the human condition, Bayer features an agricultural business. Although not the topic of this list of biotech stocks to buy, the company’s crop-protection business could have significant implications for decades to come due to climate change.
Despite the broad relevancies, Bayer enjoyed little success thus far in 2022. Since the January opener, BAYRY lost 14% of market value. One possible factor to include here is that Bayer trades in the over-the-counter market. Unfortunately, the nature of the beast states that OTC-based securities — even if they represent compelling undervalued biotech stocks to buy — deliver less visibility than exchange-based securities.
However, Bayer’s overlooked nature brings opportunity for contrarians. Gurufocus.com labels Bayer modestly undervalued. To be fair, the company’s three-year revenue growth rate stands just above middle of the road. However, Bayer features no debt, giving it incredible flexibility. As well, it commands an operating margin of 21.7%, ranked better than 87.5% of competing pharmas.
Takeda Pharmaceutical (TAK)
“Takeda’s pipeline is dynamic and diverse—most programs are first-in-class molecules that address areas of high unmet need across our core therapeutic areas: Oncology, Rare Genetics & Hematology, Neuroscience and Gastroenterology. We have also established strategic investments in Plasma-Derived Therapies and Vaccines.”
Despite the significance of its pipeline, Takeda doesn’t quite enjoy as much visibility as its blue-chip pharmaceutical peers. Since the start of this year, TAK has slipped 7%. Part of the reason for its background profile could be its international profile, with fewer Americans recognizing the investment opportunity. For instance, only two Wall Street analysts cover TAK, with sentiment split between one “buy” and one “hold.”
Still, for the astute contrarian, Takeda might deliver the goods. Currently, the company features a forward price-earnings (P/E) ratio of 10.5 times, rated lower than nearly 73% of its competitors. That seems a bit low, considering Takeda’s decent growth rate (based on free cash flow) and solid profitability metrics. TAK may be a thinking person’s idea for undervalued biotech stocks to buy.
Based in Alameda, California, Exelixis (NASDAQ:EXEL) is a genomics-based drug discovery firm specializing in oncology therapeutics. It garnered fame for Cometriq, which received approval by the U.S. Food and Drug Administration (FDA) for the treatment of progressive, metastatic medullary thyroid cancer (MTC). Nevertheless, circumstances don’t bode well for Exelixis this year. Since the January opener, EXEL has shed nearly 10% of its market value.
Part of the reason is that Wall Street apparently penalized Exelixis for staying firm with its outlook despite a recent earnings beat. Some analysts may have felt that management was being too conservative. However, this arguably represents a short-sighted reason for dumping EXEL.
Countervailing the pessimistic sentiment is broader analyst sentiment. According to TipRanks, EXEL commands a strong buy consensus rating. Also, the average price target stands at $28, representing almost 74% upside from the time of writing.
Finally, Gurufocus.com chimed in, noting EXEL is significantly undervalued. Financially, Exelixis features a robust balance sheet, solid three-year revenue growth rate and excellent net margins. Therefore, EXEL is one of the best undervalued biotech stocks to buy.
Intuitive Surgical (ISRG)
Sometimes, we all need a little bit of a cheat sheet to get us through the finish line. For this list of undervalued biotech stocks to buy, I’m going to elect the services of Intuitive Surgical (NASDAQ:ISRG). To be clear, Intuitive Surgical doesn’t rate as many (if not most) people’s idea of a biotech firm. Rather than developing therapeutics, Intuitive specializes in robotic surgical systems.
However, the broader focus remains the same: leveraging advanced technologies to deliver superior health outcomes for patients. More importantly, from an investors’ perspective, ISRG may be a contrarian steal.
According to TipRanks, Wall Street has a consensus moderate buy rating on ISRG stock. Among 15 ratings, 11 of them stand as “buys” while the remaining four ping as “hold.” The average price target is currently set at $238.67, representing 25.5% upside potential.
As well, Gurufocus.com labels ISRG significantly undervalued. As with some of the other undervalued biotech stocks to buy, Intuitive enjoys excellent metrics across the financial spectrum. Notably, its operating margin stands at 28.5%, better than 90% of companies in the medical devices and instruments sector.
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.