We recently compiled a list of the 10 Best QQQ Stocks to Buy According to Analysts. In this article, we are going to take a look at where Summit Therapeutics Inc. (NASDAQ:SMMT) stands against the other QQQ stocks.

Navigating High Valuations and Stock Opportunities

Several recent discussions have focused solely on the implications of the Fed's recent rate cut for the market. Analysts have noted that smaller interest rate reductions are expected as the Fed adopts a long-term perspective on monetary policy. Despite earlier recession predictions, there is a bullish outlook for the market now.

Economic data indicates strong growth. The current environment is characterized as stable, suggesting that additional quarter-point cuts could be beneficial. Just as October began, Richard Fisher, Jefferies’ senior advisor, joined CNBC to make a discussion on the concerns about whether current rates are too restrictive, with arguments that financial conditions remain supportive. We covered this in detail in our 10 Most Undervalued Quality Stocks To Buy According To Analysts article, here's an excerpt from it:

Analysts caution against declaring victory regarding economic stability too soon. The ongoing evaluation of monetary policy will continue until 2026. Under a similar discussion, Michael Kantrowitz, chief investment officer at Piper Sandler, joined CNBC on October 14 to discuss the outlooks on overvalued markets, as he thinks that over-valuation is no reason to get bearish.

The financial markets marked the second anniversary of the ongoing bull market, which has seen stock prices rise at the second-fastest pace since 1950. Michael Kantrowitz noted that while markets may appear expensive, this does not necessarily warrant a bearish outlook unless new risks emerge. Kantrowitz emphasized that many valuation models have indicated that the market has been expensive for some time, but he believes it is essential to understand the catalysts driving these valuations.

He explained that the significant rise in market multiples over the last two years can largely be attributed to the pricing out of risks that were prevalent two years ago, such as inflation and high interest rates. Kantrowitz stated that these concerns have largely been factored into equity prices, which is why the market is where it is today. He argued that an expensive market alone is not a reason to adopt a bearish stance; instead, potential spikes in interest rates or renewed inflation fears could trigger such a sentiment. Currently, however, he sees no immediate threats on the horizon.

When discussing sector performance, Kantrowitz clarified that his focus is less on broad sectors and more on individual stocks with strong earnings momentum. He acknowledged that while sectors like technology may appear expensive overall, there are still individual stocks within those sectors that continue to show earnings growth. He stressed the importance of earnings revisions as a key factor in stock selection and portfolio construction.

Addressing concerns about rising bond yields, Kantrowitz acknowledged that higher yields could pose challenges for equity markets. He recalled how earlier in the year when ten-year Treasury yields rose from around 3.80% to approximately 4.30%, equity markets initially remained stable but began to feel pressure as rate-sensitive stocks started underperforming. He noted that utilities and real estate sectors had benefited from lower rates but were now facing challenges as rates increased.

Kantrowitz also commented on various economic indicators suggesting mixed signals in the market. For instance, he mentioned metrics like rail freight carloads and corporate misery indices indicating weak demand. However, he cautioned against overreacting to these indicators, noting that downward earnings revisions are common as companies adjust their forecasts throughout the year. Historically, Q4 tends to see significant downward revisions as companies align their expectations with actual performance.

In the current economic climate, characterized by uncertainty and mixed signals, the importance of quality stocks cannot be overstated. Quality stocks, those with strong earnings momentum and resilient business models, are particularly well-positioned to navigate these turbulent times. As concerns about rising interest rates and inflation persist, investors may find that high-quality companies with solid balance sheets and consistent profitability can offer a buffer against volatility.

Methodology

We first sifted through the Invesco QQQ exchange-traded fund (ETF) holdings to find the ones with an upside potential of over 25% as of October 14, 2024. We then selected 10 stocks with the highest upside potentials that were also the most popular among elite hedge funds and that analysts were bullish on. The stocks are ranked in ascending order of their analysts' upside potential.

Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).

A laboratory employee in a sterile environment inspecting a microscope focused on a Clostridioides difficile infection sample.

Summit Therapeutics Inc. (NASDAQ:SMMT)

Average Upside Potential: 100.50%

Number of Hedge Fund Holders: 17

Summit Therapeutics Inc. (NASDAQ:SMMT) is a biopharmaceutical oncology company focused on developing novel therapies for rare genetic diseases. The pipeline includes potential treatments for cystic fibrosis and mitochondrial diseases. Its research and development efforts are aimed at addressing unmet medical needs and improving the lives of patients with rare genetic disorders.

The company has partnered with MD Anderson for 5 years to accelerate the development of ivonescimab, a lead drug candidate for lung cancer treatment. Ivonescimab is currently being evaluated in 20 clinical trials, including 7 for NSCLC. Early-stage trials have shown promising results. Summit Therapeutics Inc. (NASDAQ:SMMT) has seen a significant rise in its stock price, up 700% since the year started largely due to the promising results of this lead candidate.

It completed enrollment for a Phase 3 trial and expects positive results from previous trials to drive continued growth. It's  Partnering with Akeso, the company conducted successful Phase 3 clinical trials (HARMONi-A and HARMONi-2) for ivonescimab in NSCLC, demonstrating its potential.

The company has a strong financial position that allows it to invest in R&D and other growth initiatives. Despite increased IP R&D expenses due to a licensing agreement amendment, overall operating expenses remained stable in Q2 2024. With a promising pipeline, strategic partnerships, and positive clinical data, it appears to be a potential investment opportunity.

Overall SMMT ranks 1st on our list of the best QQQ stocks to buy according to analysts. While we acknowledge the growth potential of SMMT as an investment, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than SMMT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.