Insider Monkey

11 Most Undervalued Biotech Stocks to Buy According to Analysts

Muhammad Jamal Akbar
9 min read

In This Article:

In this article, we will take a look at the 11 most undervalued biotech stocks to buy according to analysts. To skip our analysis of the recent trends, and market activity, you can go directly to see the 5 Most Undervalued Biotech Stocks to Buy According to Analysts.

The M&A activity in the biotech industry is picking up pace once again after a dismal performance last year. On March 13, Pfizer Inc. (NYSE:PFE) announced an agreement to acquire Seagen Inc. (NASDAQ:SGEN), in a transaction valuing the target company at $43 billion. Another major transaction announced in the industry since the beginning of the year is the acquisition of Prometheus Biosciences, Inc. (NASDAQ:RXDX) by Merck & Co., Inc. (NYSE:MRK) for $10.8 billion, closed in June.

Companies in the healthcare sector, especially biopharma and biotechnology space, are exploring further opportunities to expand their toplines through M&A activities. During its Q2 2023 earnings call, executives at Merck & Co., Inc. (NYSE:MRK) affirmed their appetite for further deals in the recent future. Rob Davis, CEO of the company, said:

“We continue to have a priority to do business development, so you should not necessarily expect a slowdown. If and when assets that bring important scientific opportunities present themselves—where we see an alignment with strategy and where we can see value creation—we have the capacity and we will be willing to act on those."

The decline in healthcare stock prices can be attributed to multiple factors including the global macroeconomic environment, slowdown in the initial public offering (IPO) markets, as well as a decline in M&A activity across the industry. During the first five months of 2023, pharmaceutical and biotech companies spent $85 billion on acquisitions, compared to a measly $35.6 billion in the same period of 2022. Even though the industry has faced challenges in the recent past, there is potential for a significant recovery in the upcoming months. You can read more on this here: 10 Oversold Biotech Stocks to Buy.

Overall healthcare and biotech stocks aren't particularly cheap according to Sio Capital's Michael Castor. Here is what he said in his fund's recent July investor letter:

Valuations of profitable healthcare companies are generally high, though still slightly below their peaks from two years ago. However, in contrast to two years ago, when the risk-free rate of return was near zero, it is possible to earn 5% in money market accounts or holding two-year treasury bonds. When looking at valuations factoring in that equity investors require a small premium of expected return over the risk-free rate (or even a return similar to the risk-free rate), valuations on a relative basis are not dissimilar to their 2021 peaks. We know from experience that valuations are not absolute boundaries that will constrain stock prices (this is true both for high and low levels). Prices often go further than we expect, even at the extremes. However, excessively rich or cheap valuations eventually attract enough attention to increase the probability of a change in price trend. Valuation doesn’t matter until it does.

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