You can pick up shares of these innovators at a discount
- The market volatility opens doors for undervalued biotech stocks to buy.
- Genmab (GMAB): The biotech features all-around excellent financials.
- Bio-Techne (TECH): Its financials are better than much of the sector.
- Abcam (ABCM): Margins are where this biotech shines.
- Ligand Pharmaceuticals (LGND): It offers a compelling discount.
- Innoviva (INVA): It delivers on the income statement.
- Jazz Pharmaceuticals (JAZZ): Shares are deeply undervalued.
- Exelixis (EXEL): Despite efficiency concerns, it brings a lot to the table.
While the market volatility of 2022 opened doors for intriguing discounts, investors may want to consider allocating some of their funds toward undervalued biotech stocks. Fundamentally, the underlying industry represents the cutting edge of scientific innovation. Should clinical trials lead to commercialization, individual biotechnology firms can deliver outstanding returns.
Of course, when looking for undervalued biotech stocks to buy, investors must consider the reason for their market discount. Irrespective of outside fundamentals, the biotech space inherently brings much volatility to the mix. No one knows for certain whether a groundbreaking therapeutic will pass clinical muster, meaning the sector represents a high-risk, high-reward endeavor.
To remedy some of these dangers, the below ideas for undervalued biotech stocks to buy feature some financial substance to justify exposure. That is, this list avoids purely speculative or aspirational names. Without further ado, here are some of the best undervalued biotech stocks to buy.
Undervalued Biotech Stocks: Genmab (GMAB)
Headquartered in Copenhagen, Denmark, Genmab (NASDAQ:GMAB) specializes in antibodies covering cancer indications and autoimmune diseases. Currently, Genmab carries a market capitalization of $25.4 billion. Shares have slipped only 2.7% on a year-to-date basis, far better than the performance of the broader U.S. indices.
According to GuruFocus, GMAB is a modestly undervalued business based on its propriety calculations. On a broader level, investors will likely appreciate Genmab for its all-around excellent financial profile. For instance, the company features a cash-to-debt ratio of 34.1, rating well above the industry median of 10.2. Its Altman Z-Score hits over 40 points, signifying extremely low bankruptcy risk.
On the top line, Genmab’s three-year revenue growth rate stands at 38.1%, better than nearly 80% of the competition. On the bottom line, the company’s net margin is nearly 39%, surpassing 94% of the industry. To top it off, its return on equity is almost 18%, ranked within the 90th percentile of the underlying sector.
GMAB stock presents an intriguing case for undervalued biotech stocks to buy.
Headquartered in Minneapolis, Bio-Techne (NASDAQ:TECH) develops, manufactures and sells life science reagents, instruments and services for the research, diagnostic and bioprocessing markets. Presently, Bio-Techne commands a market cap of $11.6 billion. Since the beginning of the year, TECH stock has lost 43% of its value. However, shares have stabilized over the past month, gaining 4.3%.
According to GuruFocus and its proprietary calculations, TECH rates as modestly undervalued. One factor to consider is that using American academic and investor Joel Greenblatt’s assessment of earnings yield, TECH comes in at 2.3%. This ranks better than 71% of the industry.
Just as importantly, Bio-Techne features overall solid financials. For example, the company’s three-year revenue growth rate stands at 13.6%, better than 61% of the industry. Net margin stands at 24.6%, ranked better than 89% of the competition.
Finally, Bio-Techne features an Altman Z-Score of 13.6 points, again reflecting extremely low bankruptcy risk. Thus, TECH represents one of the undervalued biotech stocks investors should consider buying.
Undervalued Biotech Stocks: Abcam (ABCM)
Based in the U.K., Abcam (NASDAQ:ABCM) is a producer, distributor and seller of protein research tools. At time of writing, Abcam features a market cap of $3.6 billion. Since the start of this year, ABCM stock dropped 34% in value. However, shares have stabilized recently, rising nearly 4% over the past month.
Per GuruFocus, ABCM rates as a significantly undervalued investment based on its proprietary calculations. One metric to consider is again the earnings yield using the Greenblatt model. Here, ABCM comes in at 0.31%, ranking better than almost 67% of the industry.
However, Abcam’s claim to fame as one of the undervalued biotech stocks to buy undoubtedly focuses on its profitability angle. For example, its operating and net margins stand at 9.7% and 3.1%, respectively. Both stats rank better than three-quarters of the competition.
Just as well, Abcam enjoys decent strength in the balance sheet. Its Altman Z-Score is over 32 points, reflecting extremely low bankruptcy risk.
Ligand Pharmaceuticals (LGND)
Based in San Diego, Ligand Pharmaceuticals (NASDAQ:LGND) focuses on the acquisition of existing drugs and forming partnerships to develop them further. At the moment, Ligand carries a market cap of $1.5 billion, representing one of the smaller names among undervalued biotech stocks to buy. Since the start of the year, LGND has lost 43% of its value. However, in the past month, shares gained 1.8%.
According to GuruFocus, LGND rates as significantly undervalued. Primarily, LGND’s Shiller price-earnings ratio sits at 15 times. In sharp contrast, the industry median level is a whopping 41 times. Therefore, Ligand offers a compelling discount for those that want to speculate on undervalued biotech stocks.
Another factor to consider is the company’s growth trend. For instance, its three-year revenue growth rate stands at 15.4%. During the same period, its book growth rate hit 21.9%. Both metrics rank above industry norms.
Finally, Ligand enjoys decent strength in the balance sheet. Specifically, its Altman Z-Score of 4.2 reflects low bankruptcy risk.
Undervalued Biotech Stocks: Innoviva (INVA)
Headquartered in San Francisco, Innoviva (NASDAQ:INVA) features a portfolio of royalties and innovative healthcare investments and assets in areas of significant unmet medical need, per its website. At the time of writing, Innoviva features a market cap of $945 million, ranking among the smaller candidates for today’s undervalued biotech stocks to buy. Shares have lost over 21% YTD, though they did gain almost 17% in the past month.
According to GuruFocus, INVA is significantly undervalued based on traditional valuation indicators. For instance, its P/E ratio is 10.9, below the industry median of 28.8. Also, Innoviva’s Shiller P/E ratio is 16.3 times, lower than 80% of biotech competitors.
Notably, though, the company brings the heat to the income statement. For instance, its three-year revenue growth rate stands at 21.8%, beating out 68.5% of its peers. During the same period, its book growth rate pinged at almost 58%, ranking well above the industry median of 3.8%.
Jazz Pharmaceuticals (JAZZ)
Based in Ireland, Jazz Pharmaceuticals (NASDAQ:JAZZ) focuses on developing life-changing medicines for people with serious diseases — often with limited or no options — so they can live their lives more fully, per its website. It features expertise in two key areas: neuroscience and oncology.
Presently, Jazz Pharmaceuticals carries a market cap of slightly over $9 billion. Since the beginning of this year, JAZZ stock has gained almost 13%. Much of this enthusiasm stemmed from recent gains, with shares up nearly 8% in October. Still, if the financials have anything to say about it, JAZZ could go higher.
Prominently, data from GuruFocus shows that Jazz Pharmaceuticals is modestly undervalued. Its forward P/E ratio sits at 8.4. For comparison, the industry median is 20.3. Also, the company’s price-to-sales ratio is 2.6 times, lower than the industry median of 10.1 times.
To top it off, the company also does well on the income statement. For example, its three-year revenue growth rate is 19%, better than 65% of the competition.
Undervalued Biotech Stocks: Exelixis (EXEL)
Headquartered in Alameda, California, Exelixis (NASDAQ:EXEL) is a genomics-based drug discovery company. It’s best known for producing Cometriq, a therapeutic for medullary thyroid cancer, which the Food and Drug Administration approved. Currently, Exelixis features a market cap of $5.3 billion. Shares dropped 18% YTD, although, in the past month, they’ve gained nearly 6%.
According to GuruFocus, EXEL is significantly undervalued. Perhaps most notably, its forward P/E ratio is 11.2, ranking favorably below 73% of the competition. Also, its price-to-projected free cash flow is 0.88 times, coming in below the industry median of 2.9 times.
Aside from asset growth rising faster than revenue growth, EXEL enjoys solid financials across the board. Its balance sheet is stable, evidenced by the Altman Z-Score of 8.1 points. Its three-year revenue growth rate of nearly 18% is higher than the sector median. Plus, it features a high-quality business, with a return on equity of 12.3%. Thus, EXEL makes an intriguing case for undervalued biotech stocks to buy.
This post originally appeared at InvestorPlace.
On the date of publication, Josh Enomoto did not have (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.