How richly valued are stocks currently? Legendary investor Warren Buffett built Berkshire Hathaway‘s cash hoard rises to approximately $277 billion. If Buffett is sitting on so much money because he can’t find attractive investments to buy, you know stocks are expensive.
However, there are exceptions. In a market generally priced for perfection, three Motley Fool contributors identified what they believe are bargain stocks to buy: Axsome Therapeutics (NASDAQ: AXSM), CRISPR therapies (NASDAQ: CRSP)And Pfizer (NYSE:PFE).
A biotech with multiple catalysts on the horizon
Prosper Junior Bakiny (Axsome Therapeutics): Few things can shock biotech companies, especially the relatively small ones, like solid clinical and regulatory wins. Axsome Therapeutics, a drugmaker with a market cap of about $4.3 billion, could see quite a bit of that in the next two years. It has already made tremendous progress since the beginning of this decade, from a clinical-stage biotech company to a biotech company with two approved products on the market. But it’s not done yet.
Within the next twelve months, AXS-07, a potential therapy for migraines, and AXS-14, an investigational treatment for fibromyalgia, could both receive regulatory approval. The company will also release results from multiple clinical trials in the coming months. Positive results could boost Axsome Therapeutics’ stock price.
Is the biotech a bargain? I think the answer is yes. Although Axsome Therapeutics is generating little revenue and remains unprofitable – which is not unusual for biotech companies of this size – its late-stage pipeline is incredibly promising. Soon it should have a range of four to six products that will generate growing sales for years to come.
Axsome Therapeutics’ valuation lags behind the potential of its pipeline. Certainly, it may face clinical and regulatory setbacks – in fact, it has already faced them. However, there’s a good chance it will generate strong returns over the next five years, partly because its likely successes aren’t anchored in its valuation. That’s why I recommend investors buy the stock today.
A biotech with many advantages
David Jagielski (CRISPR therapies): While it seems like virtually all growth stocks are trading at a significant premium these days, there are some bargain options available. One of these is the gene editing company CRISPR Therapeutics. This year, growth is down 24%, but optimism should be greater than ever for the company as it is on the cusp of some exciting growth opportunities.
This past year, the Food and Drug Administration approved the CRISPR treatment Casgevy for two indications: sickle cell disease and transfusion-dependent beta-thalassemia. It could be a life-changing treatment for patients with these conditions as it provides them with a functional cure. That’s part of the reason the list price is so high: $2.2 million. CRISPR will share profits on Casgevy 40/60 with its development partner, Vertex Pharmaceutica.
Previously, CRISPR had no approved products; now it can have a path to profitability. But despite this, the biotech stock is trading around 2019 levels. Casgevy has the potential to generate more than $1 billion in annual revenue at its peak and will likely play a crucial role in CRISPR’s growth.
For investors looking for a real bargain, look no further than CRISPR Therapeutics. The company is still in the early stages of rolling out Casgevy, and over time, investors can expect stronger financial results from the company. If that happens, it could trigger a major rally.
Post-pandemic problems, but a better future
Keith Speights (Pfizer): I won’t sugarcoat things: Pfizer is facing a number of problems. Sales of the Comirnaty COVID-19 vaccine have fallen sharply as concerns about the pandemic have subsided. Some of the company’s most important blockbusters will lose their patent exclusivity in the coming years. And Pfizer recently voluntarily withdrew its sickle cell disease drug, Oxbryta, from the market over safety concerns.
As a result of these issues, Pfizer’s stock price has fallen more than 50% since the end of 2021. However, there are two positives from this sharp decline for investors. First, Pfizer’s forward dividend yield has increased to 5.7%. Secondly, the share’s valuation has become much more attractive. Pfizer shares now trade at 10.6 times forward earnings. That’s well below the expected earnings multiple of 18.6 for the S&P500 healthcare sector.
However, this low benchmark begs the question: Are Pfizer shares a value trap? I think the answer is a resounding ‘no’. The company’s future looks brighter than you might think.
Pfizer recently returned to year-over-year sales growth for the first time since late 2022, when sales of COVID-19 vaccines and antivirals were at their peak. Acquisitions have been critical to this turnaround. Migraine drug Nurtec ODT, which Pfizer picked up with its 2022 acquisition of Biohaven, contributed $356 million to sales in the second quarter of 2024. Adcetris and Padcev, cancer drugs added to Pfizer’s lineup with its 2023 acquisition of Seagen, generated a combined $673 million in revenue. sales in the second quarter.
I expect that new products – both those developed in-house and those acquired through acquisitions – will more than offset declines in revenues from drugs that lose their exclusivity in the coming years. Pfizer’s pipeline, which includes 33 late-stage programs, could produce even more big winners.
Should You Invest $1,000 in Axsome Therapeutics Now?
Consider the following before purchasing shares in Axsome Therapeutics:
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David Jagielski has no position in the stocks mentioned. Keith Speights holds positions at Berkshire Hathaway, Pfizer and Vertex Pharmaceuticals. Prosper Junior Bakiny holds positions at Vertex Pharmaceuticals. The Motley Fool holds positions in and recommends Axsome Therapeutics, Berkshire Hathaway, CRISPR Therapeutics, Pfizer, and Vertex Pharmaceuticals. The Motley Fool has a disclosure policy.
3 Bargain Stocks to Buy in a Market Priced for Perfection, originally published by The Motley Fool
