The Federal Reserve’s decision on interest rates will impact the short-term outlook of the economy. However, even with higher-for-longer interest rates, drug discovery moves on. That’s why it’s still a good time to look for biotech stocks to buy.
Most biotech stocks have performed poorly as investors moved to a risk-off position. But the work these companies do continues to move forward. There are several diseases for which there are far too few available drugs. And cancer continues to be on top of that list.
That’s the focus of many biotech stocks that may not be on the radar of retail investors. In many cases, that means investing in penny stocks and pre-revenue companies. However, the three biotech stocks to buy on this list all have steady revenue and earnings. Yet, each stock looks undervalued for different reasons based on projections for future earnings growth.
Jazz Pharmaceuticals (JAZZ)
Jazz Pharmaceuticals (NASDAQ:JAZZ) focuses on two key therapeutic areas, namely neuroscience and oncology. The Ireland-based company has an $8 billion market cap with several approved drugs on the market. Those drugs are fueling the company’s year-over-year (YOY) topline growth.
JAZZ stock is down 4% over the last 12 months. One reason is that the company missed analysts’ earnings targets in consecutive quarters. That included posting negative earnings per share in March 2023.
However, that appears to have turned around. In its last two quarters, the company has posted higher YOY earnings. The company forecasted record earnings in 2023, projecting 13% earnings growth in the next 12 months.
That allows investors to focus on the company’s pipeline, including several drugs in Phase 3 trials. Through its Vision 25 mission, the company is projecting $5 billion in revenue by 2025. The company forecasted five novel product approvals by 2030.
Incyte (NASDAQ:INCY) is involved in drug development in the areas of oncology, autoimmunity and inflammation. With a market cap of over $13 billion, this isn’t a small company, but that hasn’t made it immune from the downdraft affecting the biotech sector.
The stock is down 11% over the last 12 months and 24% alone this year. The company has had some uneven results on the top and bottom lines. However, the trend is positive. YOY revenue is up 24%, and the company is projecting earnings growth of 33%.
In its most recent earnings report, the company reported a 23% refill rate for Opzelura, a nonsegmental vitiligo treatment. The drug is priced at a premium in the market. And there are some concerns that it is a “non-first-line” treatment. However, it’s important to note there are few treatments available for nonsegmental vitiligo. That means physicians are likely to keep prescribing it to patients for whom it’s effective.
Oncology is a common theme with these three biotech stocks to buy. Exelixis (NASDAQ:EXEL) takes an innovative approach to identifying and developing its oncology drugs.
Of the three companies, Exelixis is the best performer. EXEL stock is up 26% over the last 12 months and is trading near the top of its 52-week range. However, there are reasons to believe the stock has even further to go.
EXEL stock carries a 30x forward P/E ratio. That means much of the company’s growth may be priced into the stock. However, analysts are projecting 50% earnings growth over the next 12 months, which should support the 15% growth in the company’s stock.
On the date of publication, Chris Markoch did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.