Five Cheap Healthcare Stocks Poised to Explode

The healthcare sector has witnessed a significant correction in the last 15 months, with many prominent names in the industry losing a noteworthy chunk of their market capitalization in that time. While this decline has made investors cautious about the sector which was once the hottest out there, making new highs every day, it has also made some of the healthcare stocks trade at prices that were unimaginable a few quarters ago.

Taking that into account, we at Insider Monkey thought that this might be the right time to come up with a list of inexpensive healthcare stocks that are backed by the collection of successful hedge funds in our database, and hence could see significant upside going forward. To compile the list we took all healthcare stocks that currently trade for under-$10 and cross-referenced them with our data based on the equity portfolios of 749 active funds that we monitor. In this article, we’ll reveal the names of the five stocks that topped our list and will try to decipher why a large number of hedge funds are betting on them.

We believe that imitating hedge funds and other large institutional investors can be helpful in identifying stocks capable of outperforming the broader market. Through extensive research that covered portfolios of several hundred large investors between 1999 and 2012, we determined that following the small-cap stocks that large money managers are collectively bullish on, can generate monthly returns nearly 1.0 percentage points above the market (see the details here).

#5 Pacific Biosciences of California (NASDAQ:PACB)

– Hedge Funds with Long Positions (as of June 30): 22

– Value of Hedge Funds’ Holdings (as of June 30): $154.71 Million

Let’s begin with Pacific Biosciences of California (NASDAQ:PACB), the ownership of which inched up by one among the funds that we track during the second quarter, though the aggregate value of their holdings in it fell by $51.1 million. Though Pacific Biosciences of California (NASDAQ:PACB)’s stock is currently trading down by 32.44% year-to-date, it has appreciated by 44.7% in the last 12 months. For its second quarter, the company reported a loss per share of $0.21 on revenue of $20.75 million, beating analysts’ consensus estimates of a loss of $0.22 per share on revenue of $20.19 million. On July 29, analysts at Cantor Fitzgerald reiterated their ‘Buy’ rating and $18 price target on the stock, which represents potential upside of more than 100%.

#4 Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN)

– Hedge Funds with Long Positions (as of June 30): 22

– Value of Hedge Funds’ Holdings (as of June 30): $335.20 Million

Achillion Pharmaceuticals, Inc. (NASDAQ:ACHN) saw a slight drop in its popularity among the hedge funds that we track during the second quarter, as there was one less shareholder of the stock on June 30 than there had been on March 31. Shares of the Connecticut-based biopharmaceutical company experienced a major rally between June 2014 and January 2015, appreciating by nearly 600% during that period. However, they have been on a fairly consistent decline since then, which includes losing almost 28% of their value this year. A number of analysts who cover the stock are bullish on it however, citing the strength of the company’s drug pipeline and potential catalysts that could push the stock higher. On September 22, analysts at Wedbush started coverage on the stock with an ‘Outperform’ rating and $13 price target, which amounts to potential upside of 67%.

Three more cheap healthcare stocks poised to explode are examined on the next page.