5 Undervalued Healthcare Stocks | Barron’s

It is not easy to choose the winners among health stocks. Remember that

S&P 500 health sector index

is behind that

S&P 500

up 27% over the past 12 months while the broader index is up 38%.

This year has been marked by some amazing disappointments for healthcare investors

Acadia Pharma

(Ticker: ACAD) in 2021 so far down by 51%,

FibroGen

(FGEN) decreased by 33%, and

Sarepta therapeutics

(SRPT) down by 50%.

So where should investors look for value? One strategy is to look out for Wall Street analysts, set price targets for the stocks they cover, and pick companies that are furthest below those forecasted price points.

We ran this screen this week and identified the five health stocks in the S&P 500 that are furthest below their average analyst price targets. The five companies are a solid group of stocks that have had a tough time in the market but appear undervalued.

The stocks are

Vertex Pharmaceuticals

(VRTX),

Hologic

(HOLX),

Organon

(OGN),

Incyte

(INCY) and

Cigna

(CI).

Some of these stocks have outperformed others over the past few months – and one of them is brand new. What they have in common is that analysts see room for growth that investors have previously been missing.

The S&P 500 healthcare stock furthest below its average analyst target is major biotech Vertex, which is down 20% this year and 32% over the past 12 months.

Vertex stumbled last week after it reported that its drug VX-864 had failed in a Phase 2 study in the treatment of alpha-1 antitrypsin deficiency, or AATD. It was the second Vertex drug to fail in an AATD study after a previous failure lost shares 21% in a single day last October. Last week, shares fell 11% on news of the second trial failure.

Analysts still hold the stock high, saying the company’s top performing franchise is undervalued in cystic fibrosis. “While we recognize short-term headwinds, we think the valuation creates an attractive entry point,” Citigroup analyst Mohit Bansal wrote in a note following the failure of the process last week.

Analysts’ average target price of $ 260.95 would represent a 37.3% increase from Vertex’s recent price of $ 190.02, near a 52-week low. Of the 25 analysts covering the stock, 20 rate it as overweight or buy, while three rate it as hold.

Next up is on our list

Hologic ,

the medical technology company specializing in women’s health, diagnostic tools, and other areas that sells high-throughput machines that can be used to run Covid-19 tests along with other assays. The stock has fallen 15% so far this year.

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Analysts say Hologic’s shares are falling as investors sell Covid-19 test stocks but the company’s fundamentals are strong. “HOLX fell victim to the negative COVID sentiment trade this year, which is down ~ 15% year-over-year as investors ponder the profit gap as COVID tests decline,” wrote Citi analyst Patrick Donnelly on 11.

Donnelly argued that investors are underestimating the value of Hologic’s core business. “We’re looking at ~ 14x the stock’s P / E ratio as a strong entry point and we acknowledge the COVID overhang could last through to quarterly results,” he wrote.

Hologic’s average analyst target of $ 82.95 is 33.5% above the stock’s recent price of $ 62.15. Of the 16 analysts who track the stock covered by FactSet, 11 rate it as buy or overweight, while five rate it as hold.

Organon, one of the newest members of the S&P 500, has been spun off

Merck

(MRK) earlier this month. The company focuses on women’s health, but also sells off-patent drugs, biosimilars, and other products.

Barron’s published a bullish article on Organon in early June, arguing the stock could be a winner, but investors have greeted it with ridicule and the stocks are up 13.6% since trading started on $ 30.53 last June 3rd fallen.

The stock remains thinly covered, with only five analysts tracked by FactSet following it, suggesting that Organon’s median price target isn’t particularly robust. Of these five analysts, one rate it as a buy and four as a hold. However, Barron’s writer Andrew Bary was optimistic in his June 7 article. “Given its low price / earnings ratio, Organon has good upside potential if it can meet its financial goals,” he wrote.

Organon is trading at five times expected earnings over the next 12 months.

The list also says

Incyte ,

with an average price target of $ 106.21, up 27.2% from its most recent price of $ 83.52. The stock has fallen 4% so far this year. Investors were put off by the impending expiration of patent protection for its blockbuster Jakafi, a drug against rare diseases. However, analysts remain confident on the outlook as 11 of the 20 that cover this and are tracked by FactSet have a buy or an overweight rating. Eight rate it as a hold, while one rates it as a sell.

The big health insurance companies

Cigna

rounds off our list with a current price of USD 239.86 and a target price of USD 295.52. Cigna stock is up 15.2% this year, but analysts still see room for growth.

In a June 1 note, Citi analyst Ralph Giacobbe wrote that “the incremental possibilities are everywhere underestimated”. [health insurance exchanges]…and [Medicare Advantage] these are smaller pieces, but they are likely to show oversized growth and contribute higher gross profit in dollars that should complement the growth equation. “

Giacobbe rates Cigna as a buy, and he’s not alone. Of the 25 analysts that FactSet tracked who cover the stock, 20 call it a buy and five call it a hold.

Write to Josh Nathan-Kazis at josh.nathan-kazis@barrons.com

source https://dailyhealthynews.ca/5-undervalued-healthcare-stocks-barrons/