There are plenty of opportunities to invest in healthcare stocks, as there are thousands of companies, ranging from big and well-established pharmaceuticals that also pay substantial dividends, to small, emerging companies without any products on the market or revenue, but backed by their research into novelty therapies for various illnesses. When looking for healthcare stocks to invest in, a good way to start your research, is to look at where smart money invest.
Hedge funds and other smart money investors are great at picking stocks, which is why we believe that it can be a good strategy to imitate them. It’s not just our belief, but we have actual data to back it. Our research shows that imitating certain stock picks that hedge funds are collectively bullish on can help a smaller investor beat the market by a big margin. The best approach is to focus on small-cap stocks, which are key to our investment strategy that identifies the best small-cap stocks among best-performing hedge funds. We share the stock picks that are part of our strategy with our premium subscribers every quarter (see more details here). In addition, we have a monthly activist newsletter that focuses on one activist fund and presents the best way to imitate it.
Healthcare stocks should be a part of a well-diversified portfolio for many reasons. The advancement in technology and the aging demographics suggest that the US healthcare sector will continue its growth in years to come. Moreover, healthcare is one of the few sectors that usually perform well during an economic downturn, since healthcare is an expense item that is usually the last to be reduced from a household’s budget.
However, like all sectors, healthcare is very diverse and comprises a lot of industries. One can invest in big, large-cap companies to minimize risks and enjoy solid long-term returns, or in healthcare real estate, which can provide an investor with regular dividend payments and is likely to enjoy a robust growth, since aging population will require more residential care space, while more spending among pharmaceutical companies will increase the demand for space for labs and research centers. For more risk and potentially higher rewards, one can consider investing in small biotech companies, but this area requires much more research, since a lot of the companies in this space are at early stages and their products have yet to prove their worth.
To minimize the risk of investing in smaller healthcare stocks, we have looked at healthcare stocks that are currently trading under $5 per share, but also enjoy some support among hedge funds. In addition, we have narrowed down the list even further by choosing those stocks that saw the largest increase in the number of bullish investors during 2017.
Catalyst Pharmaceuticals Inc (NASDAQ:CPRX) is the least popular stock among those that we have selected, but it is also the one that saw the largest growth in the number of bullish investors during 2017. At the end of last year, there were 15 funds long Catalyst Pharmaceuticals Inc (NASDAQ:CPRX), compared to seven funds at the end of 2016. Catalyst Pharmaceuticals Inc (NASDAQ:CPRX)’s stock surged by over 158% in the last 12 months as the company got closer to have its Firdapse product on the US market. Firdapse is a drug for the treatment of Lambert-Eaton myasthenic syndrome and it is on sale in the European Union. However, when the company filed an NDA for Firdapse in the US, the FDA refused to approved it, citing the need for an additional Phase 3 clinical trial and toxicology studies. Last November, Catalyst Pharmaceuticals Inc (NASDAQ:CPRX) said that its second Phase 3 study of Firdapse met its two co-primary endpoints and the company has said that it planned to submit resubmit the Firdapse NDA sometime this month.
In Oncomed Pharmaceuticals Inc (NASDAQ:OMED), there also were 15 funds in our database holding shares at the end of last year, up by four funds over the quarter and by five funds compared to the end of 2016. Oncomed Pharmaceuticals Inc (NASDAQ:OMED)’s stock took a big hit last April, when the company said that its tarextumab drug candidate failed a Phase 2 study for the treatment of mid-stage lung cancer. The same month, the company cut its workforce by 48% and announced plans to reorganize its operations and portfolio in order to cut costs. In May, another drug for the treatment of non-small cell lung cancer failed a Phase 2 study and the testing was discontinued. In 2018, Oncomed Pharmaceuticals Inc (NASDAQ:OMED) expects to spend less than $55 million (it has a cash balance of around $103 million) and it plans to initiate and continue enrolment in several Phase 1a and 1b studies.
The number of investors from our database long Idera Pharmaceuticals Inc (NASDAQ:IDRA) went up by six to 17 during the last three months of 2017; a year earlier, there were 10 funds with stakes in the company. Last November, Idera Pharmaceuticals Inc (NASDAQ:IDRA) obtained the Fast Track designation for IMO-2125 candidate for the treatment of refractory metastatic melanoma in combination with Bristol-Myers Squibb Co (NYSE:BMY)’s Yervoy. At the beginning of March, the company launched a Phase 3 clinical trial of IMO-2125 in combination with Yervoy for the treatment of melanoma. The study is estimated to be completed by July 2021. In addition, recently Idera Pharmaceuticals Inc (NASDAQ:IDRA) has agreed to merge with BioCryst Pharmaceuticals, Inc. (NASDAQ:BCRX). Under the terms of the merger, Idera shareholders will receive 1/5 of a share of the new company for each share they hold and BioCryst shareholders will receive 1/2 of a share. Idera Pharmaceuticals Inc (NASDAQ:IDRA)’s shareholders will own 48.4% of the new company after the merger.
BioScrip Inc (NASDAQ:BIOS) saw 18 funds in our database holding shares heading into 2018, up by one over the quarter and by four compared to a year earlier. BioScrip Inc (NASDAQ:BIOS) is an independent national provider of infusion and home care management solutions. For the fourth quarter, BioScrip Inc (NASDAQ:BIOS) reported a net loss of $0.02 per share, narrower than the expected loss of $0.08 per share. The company’s revenue of $182.58 million declined by 24% on the year, but beat the consensus estimates by $11.13 million.
At the end of 2017, there were 21 funds tracked by us that held shares of Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN), compared to 16 funds a quarter earlier. During 2017, the number of funds long the stock also went up by five, although it’s worth mentioning that during the last quarter of 2016, the number slid by 11 funds as the company’s Phase 1 study of ACH-4471 for the treatment of paroxysmal nocturnal hemoglobinuria (PNH) and atypical hemolytic uremic syndrom showed some safety issues. In November, Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) received Orphan Drug Designation for ACH-4471 for the treatment of PNH in the US and Europe. In December, the US FDA granted Orphan Drug status to ACH-4471 for the treatment of C3 Glomerulopathy. One of the benefits of Orphan Drug designation is a seven-year period of market exclusivity if the drug is approved.