In this article we will take a look at the 10 best pharma stocks to buy now. You can skip our detailed analysis of the pharmaceutical industry’s outlook for 2021 and some of the major growth catalysts for pharma stocks and go directly to 5 Best Pharma Stocks to Buy Now.
As value stocks begin to gain ground, investors are paying attention to pharma stocks with strong fundamentals, promising pipelines and decent dividend yields. The coronavirus crisis highlighted the importance of the need for real progress in the pharmaceutical industry. While major pharma companies like Pfizer were able to launch their COVID-19 vaccines in the market, their stock price gains remain lower-than-expected as the market was already pricing in the hype. Investors usually see vaccine revenue as temporary and subject to various volatile factors like pricing, government intervention and tough competition. Nevertheless, pharma stocks with strong fundamentals and growth potential are ripe for investment. It’s an ideal time for investors to take advantage of the resurgence of value stocks and pile into undervalued pharma stocks. Major drug and pharma companies have outperformed the S&P 500 in five calendar years since 2005. As of February 2021, the sector underperformed the market by about 3 percentage points.
Growth Catalysts for Pharma Stocks in 2021 and Beyond
Major pharmaceutical companies are also expected to speed up the M&A activity, with small and promising biotech companies becoming takeover targets of big players. Goldman Sachs said in a latest report that big pharma companies will increase the M&A activity in 2021 with a $530 billion “war chest” of cash. As the pharma industry readies to launch a deals spree in 2021, the FTC announced its plans to adapt an “aggressive” approach to scrutinize M&A activity in the industry. The initiative, according to media reports, is led by FTC’s acting Democratic chairwoman, Rebecca Kelly Slaughter. According to data by Evaluate Pharma, about 900 pharmaceutical deals valued at about $800 billion took place between 2016 and 2020.
Despite the fickle hurdles, pharma stocks are among the most resilient investment options for long-term investors. In December 2020, ratings agency Fitch said that the global outlook for pharma and biotech industry is stable. The industry, according to Fitch, is non-cyclical nature and is driven by favorable demand characteristics.
The pharmaceutical industry isn’t the only sector facing the volatility. The hedge fund industry that once used to post sterling gains is also feeling the reverberations of the changing financial landscape. The hedge fund industry’s reputation has been tarnished in the last decade, during which its hedged returns couldn’t keep up with the unhedged returns of the market indices. On the other hand, Insider Monkey’s research was able to identify in advance a select group of hedge fund holdings that outperformed the S&P 500 ETFs by more than 124 percentage points since March 2017. Between March 2017 and February 26th 2021 our monthly newsletter’s stock picks returned 197.2%, vs. 72.4% for the SPY. Our stock picks outperformed the market by more than 124 percentage points (see the details here). We were also able to identify in advance a select group of hedge fund holdings that significantly underperformed the market. We have been tracking and sharing the list of these stocks since February 2017 and they lost 13% through November 16th. That’s why we believe hedge fund sentiment is an extremely useful indicator that investors should pay attention to. You can subscribe to our free newsletter on our homepage to receive our stories in your inbox.
With this context and industry outlook in mind, let’s start our list of 10 best pharma stocks to buy now.
Best Pharma Stocks to Buy Now
10. Verastem, Inc. (NASDAQ: VSTM)
Number of Hedge Fund Holders: 15
Verastem is one of the fastest-growing pharma companies in the world. In 2020, the company’s revenue came in at $88.5 million, compared to $17.5 million reported in 2019. The Massachusetts-based company develops cancer treatments based on RAS targeted therapy. The company’s pipeline comprises small molecule drugs. Year to date, the stock is up 8%.
With a $23.8 million stake in Verastem, Biotechnology Value Fund/BVF Inc. owns 11.2 million shares of the company as of the end of the fourth quarter of 2020. Our database shows that 15 hedge funds held stakes in VSTM as of the end of the fourth quarter, versus 11 funds in the third quarter.
9. Novartis AG (NYSE: NVS)
Number of Hedge Fund Holders: 23
Switzerland-based Novartis is one of the biggest pharmaceutical companies in the world, with products including clozapine, carbamazepine, valsartan, cyclosporine, methylphenidate and more. The company recently posted positive results for the Phase III VISION study evaluating its treatment for progressive PSMA-positive metastatic castration-resistant prostate cancer. The study met both primary endpoints of overall survival and radiographic progression-free survival. Novartis has a dividend yield of 3.72%. The company has increased its dividend for the past 24 consecutive years.
As of the end of the fourth quarter, there were 23 hedge funds in Insider Monkey’s database that held stakes in Novartis AG, compared to 25 funds in the third quarter. Fisher Asset Management, with 9.3 million shares of NVS, is the biggest stakeholder in the company.
8. Pacific Biosciences of California, Inc. (NASDAQ: PACB)
Number of Hedge Fund Holders: 23
Pacific Biosciences ranks 8th on the list of 10 best pharma stocks to buy now. The company makes systems and technologies for gene sequencing. The company offers a single-molecule real-time sequencing (SMRT) platform based on properties of zero-mode waveguides. In February, the stock was upgraded by Piper Sandler to overweight from neutral with a price target of $52, up from $20. The firm cited Softbank’s $900 million investment in the company for the upgrade.
As of the end of the fourth quarter, 23 hedge funds in Insider Monkey’s database of 887 funds held stakes in PACB, compared to 25 funds in the third quarter. Cathie Wood’s ARK Investment Management is the biggest stakeholder in the company, with 28.5 million shares, worth $739.4 million.
In the Q4 2020 Investor Letter, Baron Discovery Fund highlighted a few stocks and Pacific Biosciences Of California Inc. (NASDAQ:PACB) is one of them. Here is what Baron Discovery Fund said:
“Pacific Biosciences of California, Inc. offers a differentiated long-read DNA sequencing platform for genetic analysis. Shares performed exceedingly well in the quarter, up about 162%. We believe there is increasing excitement about the potential for its platform as it lowers sequencing costs and has the potential to move beyond its current commercial niche. The recently appointed CEO, Christian Henry, had previously served as CFO and Chief Commercial Officer at Illumina, and we think he is well qualified to commercially execute on Pacific Biosciences’ differentiated long-read platform.”
7. 10x Genomics, Inc. (NASDAQ: TXG)
Number of Hedge Fund Holders: 33
We included 10X Genomics in our list of 10 best pharm stocks to buy now because the biotech company is getting a lot of attention from investors. The stock has gained 176% over the last 12 months. The gene sequencing technology makes hardware and software products used in gene and DNA sequencing. According to the company, 97 of the top 100 global research institutions and 19 of the top 20 global pharmaceutical companies are using its products. Analysts have a consensus estimate of $500 million for 2021 revenues for TXG. Despite the valuation concerns, the stock has more room to run.
The company is also getting the attention of the smart money, as 33 hedge funds tracked by Insider Monkey reported owning stakes in the company at the end of the fourth quarter, up from 31 funds a quarter earlier.
6. Regeneron Pharmaceuticals, Inc. (NASDAQ: REGN)
Number of Hedge Fund Holders: 46
Regeneron ranks 6th on the list of 10 best pharma stocks to buy now. The New York-based biopharmaceutical company primarily works on the regenerative capabilities of neurotrophic factors. The stock rallied after the company said its COVID-19 antibody cocktail lowered the risk of hospitalization or death in high-risk, non-hospitalized patients by 70% in a Phase 3 trial. The company was working on this COVID-19 antibody treatment in collaboration with Roche. The stock is up 7% over the last 12 months. The company also posted positive results for Libtayo (cemiplimab) monotherapy, a treatment for cervical cancer.
As of the end of the fourth quarter of 2020, Jim Simons’ Renaissance Technologies owns 904,952 shares of REGN worth $437.2 million. REGN accounts for 0.47% of Renaissance Technologies’ total portfolio.
“Regeneron was our largest absolute detractor in the third quarter, although year to date, the shares have appreciated nearly 60%. Before the end of the third quarter, Regeneron released early data on its COVID-19 antibody cocktail therapy. Data showed a strong reduction in viral load for patients who had not yet produced their own antibodies and almost no adverse events in approximately 275 patients. Soon after Regeneron’s data was released, it was announced that the President received the same therapy early in his own COVID battle.
We have not included revenues from this drug in our expectations for Regeneron as we are unsure how big or how long any sales would last. That said, we believe the speed and accuracy of bringing this drug to market is a testament to Regeneron’s R & D prowess. In six months, this therapy went from idea to development to real patient treatment with strong efficacy data thus far.
We believe Regeneron’s proprietary VelocImmune technology is a key reason the company was able to bring such a targeted therapy to patients so quickly. Furthermore, Regeneron has developed effective therapies for a wide array of diseases, including age-related macular degeneration, atopic dermatitis, asthma, hypercholesteremia, lung cancer, Ebola, and now COVID19. Its proprietary technology has allowed the company to work on a variety of diseases that have a large unmet medical need and bring many of these candidates into the clinic faster than competitors.”
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Disclosure: None. 10 Best Pharma Stocks to Buy Now is originally published on Insider Monkey.