Biotech stocks have had an uneven 2021 so far.
One major biotech fund, the
exchange-traded fund (ticker: IBB), which focuses on the bigger biotech players, is up 9%, just behind the
S&P 500 index,
which is up 14.3%. Another important fund, the
SPDR S&P Biotech ETF
(XBI), which spreads its assets across large and small biotech firms, is down 8.9% over the same period.
The success of biotech standouts at developing Covid-19 vaccines at a rapid pace has drawn new attention and investors to the sector, and a sample of health care/biotech-dedicated funds tracked by Piper Sandler analyst Christopher Raymond has seen $1.3 billion in inflows so far this year.
Picking the next big biotech stock, however, is tricky, and requires a depth of specialized knowledge. The best advice is generally to let the specialists at biotech-and-health-care-focused ETFs and mutual funds do the work for you.
For those who want to make a pick on their own, one strategy is to search for value by looking for biotech stocks that trade at the steepest discount to where Wall Street analysts expect them to trade in the near term.
|Company / Ticker||Recent Price||Average Target Price||Implied Gain|
|TG Therapeutics / TGTX||$37.32||$75.88||103.3%|
|Vir Biotechnology / VIR||$37.91||$74.29||96.0%|
|Ultragenyx Pharmaceutical / RARE||$85.49||$153.12||79.1%|
|Exelixis / EXEL||$16.67||$29.54||77.2%|
Analysts publish target prices for the stocks they cover, a price they expect the stock to hit at some point in the future, usually around a year out. Last month, we looked at the five health-care stocks in the S&P 500 that trade the farthest below their average analyst price targets.
This time, we’ve looked at the stocks in the SPDR S&P Biotech and the iShares Biotechnology ETFs with market values of over $5 billion, and we found the four that trade the farthest below their average target prices, according to FactSet.
We set the $5 billion market value as a floor to exclude some smaller stocks with just a couple of analysts covering them, for which average analyst target prices don’t mean much.
The stocks that passed the screen are
(EXEL), a group of interesting biotech stocks backed by substantial Wall Street analyst enthusiasm.
The stock in the group that trades the farthest below its average analyst target price is TG Therapeutics, a biotech that focuses on the biology of B-cells, a type of white blood cell involved in the adaptive immune system. In February, the U.S. Food and Drug Administration approved a TG Therapeutics drug called Ukoniq to treat certain lymphoma patients.
TG Therapeutics stock climbed sharply this past December, as the company released positive data on a number of trials, including a trial of its drug umbralisib in certain leukemia patients. The stock rose 77.3% in December of 2020, but is down 27.9% this year.
Analysts remain bullish on the stock. “We continue to think that the breadth of TGTX’s pipeline remains underappreciated at the current valuation,” wrote Cantor Fitzgerald analyst Alethia Young in a June 4 note.
The average target price on TG Therapeutics is $75.88, according to FactSet, which implies an 103.3% gain from the stock’s recent price of $37.32.
Another stock that passed our screen was Vir Biotechnology, the biotech firm that shot to prominence during the Covid-19 pandemic as one of the few focused on infectious disease. In May, the FDA authorized a monoclonal antibody therapy jointly developed by Vir and
(GSK) to treat Covid-19 patients. Unlike other antibody therapies, Vir’s has proven to be effective against variant strains of the virus that cause Covid-19.
Vir shares are up 41.7% so far this year. The company is also developing other products, including hepatitis B therapies that are in Phase 2 trials, and a flu antibody that is in Phase 1 trials.
Of the eight analysts tracked by FactSet who maintain ratings on Vir, seven rate it at Buy or Overweight, while one rates it at Hold. Their average target price is $74.29, according to FactSet, which implies a gain of 96% over the stock’s recent price of $37.91.
Also on our list is Ultragenyx, which develops drugs for rare diseases. Its approved therapies include Crysvita, which treats a genetic disease called X-linked hypophosphatemia, and Mepsevii, which treats a disease called Mucopolysaccharidosis VII, another rare genetic condition.
The company is also developing gene therapies for other rare diseases. Ultragenyx stock has fallen 37.5% so far this year after a delay in the restart of its trials of a gene therapy for Angelman Syndrome, which had been put on clinical hold in the fall. Analysts, however, see a buying opportunity.
“We find shares of RARE compelling at the current valuation,” Evercore ISI analyst Liisa Bayko wrote in a note upgrading the stock to Outperform from In Line in early May.
The average analyst target price on Ultragenyx stock is $153.12, according to FactSet, implying a gain of 79.1% over the recent share price of $85.49.
The final stock to pass our screen was Exelixis, an oncology-focused biotech with a number of products on the market, and a pipeline of cancer drugs. The stock is down 15.9% so far this year, after dropping 23.1% on a single day in late June when a trial of its drug cabozantinib in combination with another drug returned disappointing data.
The average analyst target price on the stock is $29.54, according to FactSet, which is 77.2% above the stock’s recent price of $16.62. That average target price may not mean much, however, as many of the target prices set by analysts have not been updated since the late-June drop.
Write to Josh Nathan-Kazis at email@example.com