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).

pharmacist, medical, retail, worker, team, young, staff, lab, chemistry, business, drug, chemist, adult, teamwork, drugstore, service,


#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%.

Follow Pacific Biosciences Of California Inc. (NASDAQ:PACB)

#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%.

Follow Achillion Pharmaceuticals Inc (NASDAQ:ACHN)

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

#3 OraSure Technologies, Inc. (NASDAQ:OSUR)

– Hedge Funds with Long Positions (as of June 30): 23

– Value of Hedge Funds’ Holdings (as of June 30): $51.51 Million

23 hedge funds that we track were long OraSure Technologies, Inc. (NASDAQ:OSUR) at the end of the second quarter, up by three quarter-over-quarter. However, during the same time the aggregate value of their holdings in it shrank by 22.5%. OraSure Technologies, Inc. (NASDAQ:OSUR) wouldn’t have made it to this list if its stock had extended the rally that was started on August 23, when the company won a contract for as much as $16.6 million from the U.S. Department of Health and Human Services to accelerate the development of its oral test kits for the Zika virus. However, the stock has corrected by more than 9% in the last month, though it is still trading up by 23.45% year-to-date. Analysts at BTIG Research recently downgraded the stock to ‘Neutral’ from ‘Buy’ while keeping their price target on it unchanged at $8.

Follow Orasure Technologies Inc (NASDAQ:OSUR)

#2 BioScrip Inc (NASDAQ:BIOS)

– Hedge Funds with Long Positions (as of June 30): 23

– Value of Hedge Funds’ Holdings (as of June 30): $141.82 Million

Hedge funds were extremely bullish on BioScrip in the second quarter, as there were ten more shareholders of the stock at the end of the quarter than there had been at the start of it. That pushed BioScrip Inc (NASDAQ:BIOS) into a tie for the most popular under-$10 healthcare stock as of the end of June among the hedge funds tracked by Insider Monkey. Although BioScrip Inc (NASDAQ:BIOS)’s stock has registered a gain of 63% so far in 2016, it is still down by more than 80% from the highs it made in mid-2013. For its fiscal third quarter, analysts are expecting the company to report a loss of $0.05 per share on revenue of $223.26 million. For the same quarter of its previous fiscal year, BioScrip pulled in $0.04 in EPS on revenue of $247.22 million. Funds that initiated a stake in the company during the April-to-June period included Andrew Goldman‘s Seven Locks Capital Management and Conan Laughlin‘s North Tide Capital.

Follow Option Care Health Inc. (NASDAQ:OPCH)

#1 Amicus Therapeutics, Inc. (NASDAQ:FOLD)

– Hedge Funds with Long Positions (as of June 30): 23

– Value of Hedge Funds’ Holdings (as of June 30): $269.70 Million

Lastly, Amicus Therapeutics, Inc. (NASDAQ:FOLD) was also tied for the top spot on this list, though it gets placed first on account of having more money invested in it than the two stocks that it’s tied with. The 23 hedge funds that we cover which had stakes in it held almost 39% of the company’s float at the end of June. The value of their holdings is in spite of the 35.4% decline in the stock during the second quarter. Amicus Therapeutics, Inc. (NASDAQ:FOLD)’s stock has since rebounded strongly, gaining over 41% since the end of June. According to analysts who track the stock, it could see significant upside in the coming months on the back of a number of near-term catalysts, including U.S. regulatory approval for its drug Galafold, as well as the release of the top-line data from the phase 3 trial of its drug Zorblisa.

Disclosure: None