With the third quarter of what has proven to be a remarkable 2020 coming to a close, many of the firms we cover across Wall Street already are looking to the stretch run of the year and at what should be an improving 2021 economy as we emerge from the COVID-19 pandemic restrictions. One thing’s for sure. The rally everybody was looking to arrive in the second half of the year already may have come and gone.
Despite the recent selling, the S&P 500 has made a stunning reversal off the March 23 lows, recouping all the losses while printing new all-time highs. Jefferies analysts were tasked with providing their 50 top high-conviction ideas for the second half of 2020 and beyond. The research report that covered them all noted this:
We present the US Research team’s current top ideas, spanning all sectors under coverage. With representation from nearly every publishing analyst, we highlight 50 stocks we find particularly attractive. These are our highest conviction ideas, regardless of theme or macro backdrop, and include our Franchise Picks.
We screened the health care picks, as the sector has solid momentum heading into the fourth quarter and 2021, and found five solid ideas for long-term growth investors with a degree of risk tolerance. While these stocks are rated Buy at Jefferies, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
This off-the-radar stock has big potential upside. BioXcel Therapeutics Inc. (NASDAQ: BTAI) is a clinical-stage biopharmaceutical company has two clinical development programs. BXCL501 is a sublingual thin film formulation designed for acute treatment of agitation resulting from neurological and psychiatric disorders. BXCL701 is an immuno-oncology agent designed for treatment of a rare form of prostate cancer and for treatment of pancreatic cancer.
Jefferies is bullish on its progress:
Lead asset, BXCL501, is a de-risked treatment for acute agitation in schizophrenia and bipolar disorder. We believe approval around year end 2021 or first quarter 2022 is almost certain, which positions the company for ~$850 million per year in peak revenue. We are bullish for follow-on indications, most notable of which is agitation in dementia with the potential to add over ~$1 billion per year in peak sales. We think ‘501 will 1 will succeed in the upcoming Ph2 dementia trial (4Q20 catalyst) and clearly positive data could send shares up 75% or more by year end.
The Jefferies price target for the shares is $82, but that is well below the Wall Street consensus target of $110.89. The shares were last seen trading at $43.14 apiece.
This solid value buy in the sector makes sense for investors who are more conservative. Cigna Corp. (NYSE: CI) is a major health services organization that provides insurance and related products and services in the United States and internationally. All products and services are provided exclusively by or through operating subsidiaries of Cigna, including Cigna Health and Life Insurance Company, Life Insurance Company of North America, Cigna Life Insurance Company of Canada and their affiliates.
The health care giant offers an integrated suite of health services, such as medical, dental, behavioral health, pharmacy, vision, supplemental benefits and other related products, including group life, accident and disability insurance. Cigna maintains sales capability in 30 countries and jurisdictions, and it has approximately 86 million customer relationships throughout the world.
Cigna has a partnership relationship with (and an equity stake in) MDLive for telehealth. Increased telehealth adoption should also translate to a shift in prescription fulfillment to nonphysical pharmacy locations, which should benefit the company’s Express Scripts business, which operates the largest mail pharmacy in the United States.
The analysts noted this:
We believe Cigna’s recent underperformance is unwarranted. The stock is the cheapest in the Managed Care group at 8.5x 2021 estimated earnings-per-share, or a 30% discount to peers. We see an opportunity for the stock to re-rate higher from consistent execution in the pharmacy business management business, sale of the Group disability and life insurance business that enhances capital deployment flexibility, and share gains in Medicare Advantage.
Jefferies has a $247 price target, while the consensus figure is $240.12. Friday’s last trade for Cigna stock was reported at $162.45.
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This has been touted as a potential takeover target, as it may be a very solid fit for a big medical devices player. Haemonetics Corp. (NYSE: HAE) provides products for processing, handling and analysis of blood. It offers plasma collection and storage products, including PCS brand plasma collection equipment and disposables, plasma collection containers, and intravenous solutions, as well as information technology platforms for plasma customers to manage their donors, operations, and supply chain.
Jefferies has been positive on Haemonetics for years and said this in the report:
Our updated NexSys adoption bridge analysis still calls for contract wins from several large customers (Grifols and CSL included) but now calls for revenue and earnings-per-share upside of $170 million and $2.20 (prior $150 million and $2.00) when the benefits of even higher yields from the PPN algorithm and more favorable pricing is considered.
The stunning $145 Jefferies price target compares with the $114.83 consensus target. Haemonetics closed at $87.12 a share on Friday.
This may be another great play for more speculative investors. Horizon Therapeutics PLC (NASDAQ: HZNP) focuses on researching, developing and commercializing medicines that address unmet treatment needs for rare and rheumatic diseases in the United States and internationally.
The company’s orphan and rheumatology marketed medicines include the following:
Krystexxa, a medicine for the treatment of uncontrolled gout Ravicti for use as a nitrogen-binding agent for chronic management of adult and pediatric patients Procysbi for nephropathic cystinosis, a rare and life-threatening metabolic disorder Actimmune for chronic granulomatous disease Rayos for the treatment of multiple conditions, rheumatoid arthritis Buphenyl tablets for oral administration and Buphenyl powder for oral, nasogastric or gastrostomy tube administration Quinsair, a formulation of the antibiotic drug levofloxacin for the management of chronic pulmonary infections due to pseudomonas aeruginosa in adult patients with cystic fibrosis
Jefferies noted this:
The company’s two lead biologic drugs have no current competition, are long duration assets and have combined peak sales potential of $3-4 billion. Refractory gout drug Krystexxa is annualizing at ~$400 million and growing 25%+ year-over-year and we forecast peak potential sales of $1 billion+. Recently launched thyroid eye disease drug Tepezza has peak sales potential of $3 billion+ and may already be annualizing at $750 million+ after just seven months on the market. We expect 25%+ annual growth over the next 3-4 years irrespective of the macro-economy, leading to upside to ours and consensus numbers.
Jefferies has set a $90 price objective. The consensus target is $97.25, and Horizon Therapeutics stock ended last week at $78.25 a share.
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This is a very aggressive biotech idea for investors with risk tolerance. Vertex Pharmaceuticals Inc. (NASDAQ: VRTX) engages in discovering, developing, manufacturing and commercializing small molecule drugs for patients with serious diseases in specialty markets. The company focuses on developing and commercializing therapies for the treatment of cystic fibrosis (CF) and hepatitis C.
The company markets Trikafta, Symdeko/Symkevi, Orkambi and Kalydeco to treat patients with CF who have specific mutations in their CF transmembrane conductance regulator gene. It is also developing VX-814, which is in Phase 2 clinical trial, and VX-864, which is in Phase 1 clinical trial for the treatment of alpha-1 antitrypsin deficiency; VX-147 for treating kidney diseases; and CTX001, which is in Phase 1/2 clinical trial for the treatment of beta-thalassemia and sickle cell diseases.
The analysts noted this:
Vertex is a relatively easy story to own, with the CF franchise expected to pull in $6 billion+ in sales this year (even during COVID). We like the pullback here, as the company’s robust pipeline of 4-5 candidates could potentially add another $5 billion+ of revenue opportunity over the next few years (and the stock should move higher if any of these work).
The Jefferies price target is $340. The consensus target is $306.43, and Vertex Pharmaceuticals close most recently at $268.18 a share.
These five high-conviction health care stock picks from the analysts at Jefferies all make sense for investors looking to gain exposure to a sector that should continue to do well the rest of 2020 and for years to come, given the aging population both here and around the world.