In this article, we will look at the 7 Most Undervalued Biotech Stocks To Invest In.
Trump’s Tariffs and the Pharma Sector
On February 21, Jared Holz, Mizuho Securities America’s healthcare sector strategist, appeared on CNBC to discuss Trump’s tariffs and their effects on the American pharma sector. Although he was unsure of the intention behind these tariffs, he opined that the pharma industry was not all that special when compared to verticals such as industrials and technology, such that President Trump would intend to enlarge its presence in the US.
The tariffs thus encompass the grander plan surrounding how the pharmaceutical industry fits into scaling up domestic manufacturing. A majority of pharma and biotech companies have a significant presence in the US. However, some questions still stand, such as whether they will hire more people in the US compared to Europe or Asia and whether they will bring back more business to America.
Holz was unclear about the answers to these questions, but he believed that anything coming out of Europe or China would obviously be fair game. Further discussing the scenario, he said that boosting manufacturing facilities and capacities from scratch is not an easy endeavor, as it takes considerable years to reach a point where companies can domestically produce at a high rate. Therefore, the impact of tariffs on the production capacity and on-shoring of pharma companies remains fuzzy.
READ ALSO: 10 Best Performing Pharma Stocks So Far in 2025 and 11 Best Pharma Stocks to Buy According to Hedge Funds.
How Will the Pharma Industry Perform in 2025?
We further discussed the potential impacts of Trump’s tariffs and the performance of the pharma industry in a recently published article on the 10 Oversold Pharma Stocks to Buy According to Analysts. This excerpt from the article offers another analyst’s point of view:
“On February 20, Emily Field, Head of European Pharma Research at Barclays, appeared on CNBC to discuss the dynamics of the pharmaceutical sector, the impact of US tariffs, and the performance of obesity drugs. She believed the industry may not underperform this year, at least in the first half. However, there are still several questions surrounding the performance of obesity drugs, as major players in the domain have exhibited contrasting previous year performance.
Talking about the tariffs, she said that their materialization poses a big open question for the pharmaceutical sector as some companies assemble their products in the US after manufacturing them abroad. Manufacturing costs are thus pretty low for these companies, which is a significant point to consider when determining the impact of tariffs. She believed that absorbing the additional cost of the tariffs would be very manageable for these companies. The market has reached the tail-end of the earnings season, and the situation hasn’t come up much on earnings calls over this quarter.”
With these trends in view, let’s look at the 7 most undervalued biotech stocks to invest in.
A biotechnologist in a lab suit studying a syringe with a mesenchymal lineage cells inside.
Our Methodology
We sifted through stock screeners, online rankings, and ETFs to compile a list of 15 biotech and biopharma stocks with a forward P/E of less than 15. We then selected the top 7 with the highest number of hedge fund holders as of Q4 2024. We sourced the hedge fund sentiment data from Insider Monkey’s database. The list is sorted in ascending order of hedge fund sentiment.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
7 Most Undervalued Biotech Stocks To Invest In
7. Elanco Animal Health Incorporated (NYSE:ELAN)
Forward P/E: 11.79
Number of Hedge Fund Holders: 37
Elanco Animal Health Incorporated (NYSE:ELAN) is a biotech company that delivers services and products that prevent and treat disease in pets and farm animals. Its diverse portfolio serves animals across various species, primarily cats, dogs, cattle, swine, poultry, and sheep. The company’s product offerings are divided into Farm Animal and Pet Health. The Pet Health portfolio specializes in parasiticides, therapeutics, and vaccines. It also offers products that grant protection from ticks, fleas, and internal parasites. The Farm Animal portfolio focuses on swine, cattle, and poultry and includes an elaborate list of products. These include Denagard, Baycox, Experior, Rumensin, Monteban, Baycox, Maxiban, Comforta, Catosal, and others.
It delivered a strong end to fiscal year 2024, marking its sixth consecutive quarter of organic constant currency revenue growth with fiscal Q4 2024 up 4%. In fiscal year 2024, Elanco Animal Health Incorporated (NYSE:ELAN) grew both its Pet Health and Farm Animal segments, in its top five product franchises, and in nine of its top 10 countries, all on an organic constant currency basis. These trends reflect the broad-based strength of the company’s diverse portfolio.
Elanco Animal Health Incorporated (NYSE:ELAN) is strategically focused on streamlining its operations while progressing in its innovative product pipelines, demonstrating significant growth opportunities. The launch of Credelio Quattro, which is expected in Q1 2025, is expected to support the company’s position in the parasiticide segment. Furthermore, the strong performance of Experior, primarily in the heifer market, is anticipated to significantly contribute to its growth in 2025.
The potential success of such products, together with the ongoing expansion of Zenrelia—a JAK inhibitor for treating pruritus and atopic dermatitis in dogs launched in late September 2024—is expected to fuel revenue growth and further strengthen Elanco Animal Health Incorporated (NYSE:ELAN)’s market position over the next few years.
6. GSK plc (NYSE:GSK)
Forward P/E: 9.26
Number of Hedge Fund Holders: 38
Formerly known as GlaxoSmithKline, GSK plc (NYSE:GSK) is a global healthcare and biopharmaceutical corporation that develops and distributes a range of vaccines, medications, and consumer health items. It is based in the United Kingdom and has over 20 vaccines in its portfolio, positioning it as a leader in vaccines, immunology, and respiratory therapies. The company also develops cancer treatments for multiple myeloma, ovarian cancer, and endometrial cancer in addition to other drugs.
GSK plc (NYSE:GSK) reported solid financial results for fiscal Q4 2024, reflecting strong growth across key metrics. Its sales grew 8% to over £31 billion in 2024, and core operating profit rose by 13%. Similarly, core earnings per share (EPS) grew by 12%.
This growth was attributed to the company’s Specialty Medicines segment, which rose 19% in sales. Its HIV sales grew by 13% for 2024, and oncology sales nearly doubled to over £1.4 billion. GSK plc (NYSE:GSK) is continuing to strengthen its pipeline, with 11 positive phase III trials reported in 2024 and five new product approvals anticipated in 2025. These include Blenrep for multiple myeloma and depemokimab for severe asthma.
5. Biogen Inc. (NASDAQ:BIIB)
Forward P/E: 9.07
Number of Hedge Fund Holders: 52
Biogen Inc. (NASDAQ:BIIB) is a global biopharmaceutical company that discovers, develops, and delivers advanced therapies for serious diseases across the globe. Its medicine portfolio treats multiple sclerosis (MS), spinal muscular atrophy (SMA), Alzheimer’s disease, and amyotrophic lateral sclerosis (ALS). The company has an elaborate marketed product portfolio for MS, including TECFIDERA, VUMERITY, AVONEX, PLEGRIDY, TYSABRI, and FAMPYRA. It also markets SPINRAZA to treat SMA, SKYCLARYS for the treatment of Friedreich’s Ataxia, and other drugs.
The company is focusing on the four products it launched last year for Alzheimer’s, Friedreich’s ataxia, depression, and ALS. The products hold significant potential as the first disease-modifying agents in each of these diseases. Biogen Inc. (NASDAQ:BIIB) has also reprioritized its pipeline, focusing on a number of key projects to boost its business success. It has various key developments set for 2026, marking a multi-billion dollar portfolio.
Biogen Inc. (NASDAQ:BIIB) is also making continued progress in its commercial portfolio. Fiscal Q4 2024 global in-market sales for LEQEMBI, which treats Alzheimer’s, reached approximately $87 million, representing positive continued sequential growth. Global SKYCLARYS revenue of around $102 million in the quarter also showed continued patient growth, as the drug has nearly doubled the number of patients on therapy globally compared to 2023. Biogen Inc. (NASDAQ:BIIB) also reported a 3% year-over-year growth in its total revenue in fiscal Q4 2024, reaching $2.5 billion. Its non-GAAP diluted EPS was $3.44, reflecting a 17% year-over-year growth. The company takes the fifth spot on our list of the 7 most undervalued biotech stocks to invest in.
Patient Capital Opportunity Equity Strategy stated the following regarding Biogen Inc. (NASDAQ:BIIB) in its Q2 2024 investor letter:
“Biogen Inc. (NASDAQ:BIIB) is another name that we believe is underappreciated. As a global biopharmaceutical business, the company is most well known for their products in multiple sclerosis, spinal muscular atrophy, and most recently Alzheimer’s disease. The new CEO, Christopher Viehbacher, is working to improve the company’s pipeline, most recently with their acquisition of Human Immunology Biosciences Inc. in May. Chris has a strong track record of successful M&A and we expect him to continue that tradition. More importantly, we think the market is currently giving the company no credit for success in their Alzheimer’s indication. While the uptake in Leqembi, their Alzheimer’s product, has been slow, we still see strong long-term potential for a patient population that is dramatically underserved. We find the risk/reward extremely attractive.”
4. Gilead Sciences, Inc. (NASDAQ:GILD)
Forward P/E: 14.4
Number of Hedge Fund Holders: 74
Gilead Sciences, Inc. (NASDAQ:GILD) is a biotech company that advances medicines to prevent and treat serious diseases such as cancer, immunodeficiency virus (HIV), viral hepatitis, and COVID-19. Its portfolio of drugs focuses on medical areas with unmet needs and includes AmBisome, Atripla, Biktarvy, Cayston, Complera, and others. Gilead Sciences, Inc. (NASDAQ:GILD) operates in over 35 countries.
The company reported a 6% year-over-year growth in its fiscal Q4 2024 revenue, which reached $7.6 billion. Its GAAP EPS reflected a year-over-year increase of roughly 25%, while its adjusted EPS rose around 10.5% year-over-year to $1.90, surpassing analyst estimates.
The company’s HIV sales also present a positive picture, rising 8% in 2024 to $19.6 billion and exceeding its expectations of a 5% growth. Full-year sales for Biktarvy, an HIV treatment, rose 13%. Gilead Sciences, Inc. (NASDAQ:GILD) has established a track record of consistently strong growth in its HIV business, undergoing a 5% growth in 2022, 6% in 2023, and 8% in 2024. This growth is attributed to its strong execution and the strength of its innovation.
In addition to these strong results, Gilead Sciences, Inc. (NASDAQ:GILD) announced upbeat 2025 guidance, expecting significantly higher numbers and improved performance. Management expects non-GAAP diluted EPS of between $7.70 and $8.10, versus $4.62 for full-year 2024.
3. Bristol-Myers Squibb Company (NYSE:BMY)
Forward P/E: 9.12
Number of Hedge Fund Holders: 88
Bristol-Myers Squibb Company (NYSE:BMY) is a biopharmaceutical company that discovers, develops, and delivers advanced medicines for serious diseases. Its medicines fall into various therapeutic classes, including hematology, oncology, cardiovascular, immunology, and neuroscience.
Bristol-Myers Squibb Company (NYSE:BMY) has exhibited strong performance in dividend growth, with eight consecutive years of increases and outperforming the sector median of two years by 300%. It has maintained dividend payments for 35 consecutive years, surpassing the sector median of 15 years by 133%. This reflects the company’s strong financial health and ability to deliver value to shareholders.
The company also has a strong drug portfolio and robust pipeline due to acquisitions and partnerships, forming a base of a wide economic moat. For instance, its acquisition of Celgene strengthened its pipeline, providing it with a strong entrenchment in blood cancer. Bristol-Myers Squibb Company’s (NYSE:BMY) recent acquisitions of oncology firms RayzeBio and Mirati and neurology firm Karuna have further bolstered its overall pipeline. The company takes the third spot on our list of the 7 most undervalued biotech stocks to invest in.
2. Merck & Co., Inc. (NYSE:MRK)
Forward P/E: 10.54
Number of Hedge Fund Holders: 91
Merck & Co., Inc. (NYSE:MRK) is a biopharmaceutical company that delivers health solutions to advance the treatment and prevention of diseases in animals and people. Its Pharmaceutical segment offers vaccines and human health pharmaceutical products, which typically consist of therapeutic and preventive agents. Its Animal Health segment develops, discovers, manufactures, and markets a range of vaccines and veterinary pharmaceutical products.
The company is experiencing some headwinds, negatively impacting its revenue outlook. For instance, it has temporarily stopped the shipments of its HPV vaccine Gardasil to China until mid-2025 due to weak discretionary spending. Despite these short-term challenges, Merck & Co., Inc. (NYSE:MRK) has strong operations, supported by robust demand for its diverse and innovative portfolio. Its Keytruda drug for cancer treatment is performing well, and the launch of Winrevair, a drug that treats pulmonary arterial hypertension (PAH), is also boosting revenue growth for the company.
In addition, Merck & Co., Inc.’s (NYSE:MRK) pipeline lends it a competitive market advantage, with around 20 potential new growth drivers holding blockbuster potential. Its late-stage pipeline in infectious diseases, oncology, and cardiometabolic further bolsters its future outlook. The company’s strong commercial execution, diversified portfolio, and innovative pipeline lend it resilience against short-term headwinds, positioning it as an attractive investment with a solid long-term growth trajectory.
GreensKeeper Asset Management, an investment management company, released its Q3 2024 investor letter. Here is what the fund said:
“Merck & Co., Inc. (NYSE:MRK) was our second-largest detractor this quarter, declining -8.3%. MRK’s leading HPV vaccine, GARDASIL 9, faced challenges internationally due to inventory buildup within its Chinese distributor, which is expected to reduce shipments for the remainder of 2024. Despite this short-term impact, the long-term outlook for GARDASIL 9 remains promising. Meanwhile, the company’s $27 billion Keytruda cancer juggernaut continues to grow at a healthy clip, powering earnings growth.”
1. Pfizer Inc. (NYSE:PFE)
Forward P/E: 8.82
Number of Hedge Fund Holders: 92
Pfizer Inc. (NYSE:PFE) is a global biopharmaceutical company that manufactures, develops, markets and sells biopharmaceutical products worldwide. It advances wellness, prevention, treatment, and cures in developing and emerging markets. The company’s goal is to become a world-class oncology leader. It is already the third-largest biopharma company in oncology in the United States and has plans to continue its progress in oncology for the rest of the decade.
Pfizer Inc. (NYSE:PFE) has an attractive dividend yield of 6.3%, higher than most blue-chip stocks. Its management has reiterated plans to support and raise this dividend periodically, recently announcing a 2.4% increase in early December.
Pfizer Inc. (NYSE:PFE) is focused on its oncology pipeline for future growth, with its 2030 goals entailing the addition of several new blockbuster drugs to its portfolio. The company is expected to continue looking for opportunities to acquire promising pharmaceutical companies to augment its pipeline further. It used a significant portion of its pandemic profits on the $43 billion acquisition of Seagen, a biotech company specializing in oncology.
This strategy is working well for Pfizer Inc. (NYSE:PFE) as management estimates earnings growth between 10% and 18% for 2025. Analysts also estimate the company’s earnings to grow by around 14% annually over the next 3-5 years.
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