In this article, we discuss 12 most undervalued pharma stocks to buy according to hedge funds. If you want to see more stocks in this selection, check out 5 Most Undervalued Pharma Stocks To Buy According To Hedge Funds.
Fitch Ratings has assigned a ‘Neutral’ outlook to the global pharmaceutical and biotech sector, indicating Fitch’s assumption of an encouraging operating environment in 2023, regardless of inflationary constraints and the skyrocketing interest rates. As per Fitch, there are many positive secular trends in the pharma sector, which will drive growth and innovation, including an increasing and aging population, higher prevalence of chronic diseases, and easier access to healthcare worldwide.
2022 has been a taxing year for mergers and acquisitions in the pharmaceutical and life sciences sector, with both deal value and volume at multi-year lows due to the challenging macro environment, combined with larger market dislocation. In 2023, PwC anticipates M&A patterns to resemble the last few years, with total deal value ranging from $225 billion to $275 billion across the pharma industry. Sufficient cash stockpiles, the need for investment to overcome medium-term pipeline gaps, and the revaluation of biotech firms will set the backdrop for a busy year.
PwC expects that with the results of the US midterm elections finalized and the impact of the Inflation Reduction Act on pricing more transparent, most of the uncertainty that afflicted the pharma industry in 2022 should settle down. PwC sees higher potential for deals in the $20 billion to $40 billion range before 2023 ends. To benefit from the growth in the pharma industry, some of the most undervalued stocks to buy according to hedge funds include Pfizer Inc. (NYSE:PFE), Bausch Health Companies Inc. (NYSE:BHC), and Moderna, Inc. (NASDAQ:MRNA).
Our Methodology
We scanned Insider Monkey’s database of holdings of 920 elite hedge funds tracked as of the end of the third quarter of 2022 and picked the 12 most undervalued pharma stocks that have P/E ratios of less than or close to 15 as of January 23. The list is arranged in ascending order of the number of hedge fund holders in each firm.
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12. Cullinan Oncology, Inc. (NASDAQ:CGEM)
Number of Hedge Fund Holders: 16
P/E Ratio as of January 23: 4.75
Cullinan Oncology, Inc. (NASDAQ:CGEM) is a Massachusetts-based biopharmaceutical company, engaged in developing a pipeline of targeted oncology and immuno-oncology therapies for cancer patients in the United States. On October 25, Cullinan Oncology, Inc. (NASDAQ:CGEM) announced that it increased its ownership in its subsidiary Cullinan MICA to 92% from 54% for $30.7 million. MICA owns worldwide rights to CLN-619, an antibody being investigated as monotherapy and in combination with checkpoint inhibitor therapy in an ongoing phase 1 trial in patients with advanced solid tumors. The company expects to report initial clinical data in mid-2023.
On November 21, BTIG analyst Kaveri Pohlman assumed coverage of Cullinan Oncology, Inc. (NASDAQ:CGEM) with a Buy rating and a $20 price target. Cullinan is a platform-agnostic oncology company focused on the development of therapeutics "that have the potential to be either first-in-class or best-in-class," the analyst wrote in a research note. The company has three clinical-stage assets, all with differentiated targets, that look largely applicable and address billion-dollar market opportunities, noted the analyst.
According to Insider Monkey’s third quarter database, 16 hedge funds were bullish on Cullinan Oncology, Inc. (NASDAQ:CGEM), and Mark Lampert’s Biotechnology Value Fund / BVF Inc is the largest stakeholder of the company, with 7.50 million shares worth $96.2 million.
In addition to Pfizer Inc. (NYSE:PFE), Bausch Health Companies Inc. (NYSE:BHC), and Moderna, Inc. (NASDAQ:MRNA), Cullinan Oncology, Inc. (NASDAQ:CGEM) is one of the most undervalued pharma stocks to invest in.
11. iTeos Therapeutics, Inc. (NASDAQ:ITOS)
Number of Hedge Fund Holders: 20
P/E Ratio as of January 23: 2.80
iTeos Therapeutics, Inc. (NASDAQ:ITOS) was founded in 2011 and is headquartered in Watertown, Massachusetts. It is a clinical-stage biopharmaceutical company, focused on the discovery and development of immuno-oncology therapeutics for patients. The company’s cash and cash equivalent position was $752.2 million as of September 30, 2022, as compared to $899.8 million as of September 30, 2021. The company expects its cash balance to provide runway into 2026 to support differentiated clinical programs for EOS-448 and Inupadenant, as well as advance preclinical programs targeting immunosuppression pathways. It is one of the most undervalued pharma stocks to invest in according to hedge funds.
According to Insider Monkey’s third quarter data, 20 hedge funds were long iTeos Therapeutics, Inc. (NASDAQ:ITOS), compared to 24 funds in the prior quarter. Peter Kolchinsky’s RA Capital Management is the biggest stakeholder of the company, with 4.4 million shares worth $84 million.
10. Innoviva, Inc. (NASDAQ:INVA)
Number of Hedge Fund Holders: 20
P/E Ratio as of January 23: 3.95
Innoviva, Inc. (NASDAQ:INVA) is a California-based company engaged in the development and commercialization of pharmaceuticals in the United States and internationally. On December 1, the U.S. Food and Drug Administration granted priority review to Innoviva, Inc. (NASDAQ:INVA)’s application for the approval of SUL-DUR to treat infections caused by Acinetobacter baumannii-calcoaceticus complex. The FDA accepted the company's new drug application and is expected to make a decision by May 29, 2023.
On July 20, Goldman Sachs analyst Chris Shibutani assumed coverage of Innoviva, Inc. (NASDAQ:INVA) with a Neutral rating and a $16 price target. The analyst believes the stock's current valuation is fair, with the company pivoting to healthcare investments.
According to Insider Monkey’s data, 20 hedge funds were long Innoviva, Inc. (NASDAQ:INVA) at the end of the third quarter of 2022, up from 14 funds in the prior quarter. Alex Denner’s Sarissa Capital Management is the largest stakeholder of the company, with 6.6 million shares worth $76.7 million.
9. Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD)
Number of Hedge Fund Holders: 21
P/E Ratio as of January 23: 12.14
Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) was incorporated in 1998 and is headquartered in Boston, Massachusetts. It is a healthcare company focused on the development and commercialization of gastrointestinal products. For FY2023, Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) reaffirmed its guidance, expecting total revenue of $420 to $435 million, versus a consensus of $439.33 million and adjusted EBITDA of more than $250 million. It is one of the most undervalued pharma stocks among smart investors.
On September 2, investment advisory Capital One initiated coverage of Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) with an Overweight rating and a $15 price target. Analyst Tim Chiang issued the ratings update.
According to Insider Monkey’s data, 21 hedge funds were long Ironwood Pharmaceuticals, Inc. (NASDAQ:IRWD) at the end of Q3 2022, compared to 19 funds in the prior quarter. Jim Simons’ Renaissance Technologies is a significant position holder in the company, with 5.3 million shares worth $55.6 million.
8. Immatics N.V. (NASDAQ:IMTX)
Number of Hedge Fund Holders: 25
P/E Ratio as of January 23: 15.02
Immatics N.V. (NASDAQ:IMTX) is a German clinical-stage biopharmaceutical company engaged in the discovery and development of T cell receptor-based immunotherapies for the treatment of cancer in the United States. On November 17, Immatics N.V. (NASDAQ:IMTX) reported revenue of €15.06 million for the third quarter of 2022, up 133.9% year-over-year.
On October 10, Chardan analyst Geulah Livsh*ts reiterated a Buy rating and a $28 price target on Immatics N.V. (NASDAQ:IMTX) after the company's data on PRAME-targeting TCR T cell therapy IMA203. The results help validate PRAME as a clinical target with what is potentially a best-in-class profile, and she increased her launch probability for IMA203 from 35% to 40%, the analyst wrote in a research note.
According to Insider Monkey’s Q3 data, 25 hedge funds were bullish on Immatics N.V. (NASDAQ:IMTX), with combined stakes worth $171.7 million. Julian Baker and Felix Baker’s Baker Bros. Advisors is the biggest position holder in the company, with 4.4 million shares worth $44.2 million.
7. Novartis AG (NYSE:NVS)
Number of Hedge Fund Holders: 26
P/E Ratio as of January 23: 9.49
Novartis AG (NYSE:NVS) was incorporated in 1996 and is headquartered in Basel, Switzerland. The company researches, develops, manufactures, and markets healthcare products worldwide, including prescription medicines for therapeutic areas such as ophthalmology, neuroscience, immunology, hepatology, dermatology, respiratory, cardiovascular, renal, and metabolism. On December 13, The European Commission approved Novartis AG (NYSE:NVS)’s Pluvicto to treat certain patients with advanced prostate cancer. It is one of the most undervalued pharma stocks to invest in.
On January 3, JPMorgan analyst Richard Vosser upgraded Novartis AG (NYSE:NVS) to Neutral from Underweight with a price target of CHF 85, up from CHF 78. The analyst continues to see a "bifurcation" in European pharma company outlooks in 2023, both in terms of pipeline readouts and longer-term where "generics again need to be navigated." He continues to favor companies "which have sustainably higher growth" and "far more" pipeline data points, new launches to drive estimate upgrades.
According to Insider Monkey’s data, 26 hedge funds were bullish on Novartis AG (NYSE:NVS) at the end of September 2022, compared to 22 funds in the prior quarter. Jim Simons’ Renaissance Technologies is the largest stakeholder of the company, with 3.18 million shares worth $241.85 million.
Here is what Madison Investors Fund has to say about Novartis AG (NYSE:NVS) in its Q3 2022 investor letter:
“We sold our position in Novartis. We like the company’s track record of innovation, and its diversified portfolio of drugs. However, we’ve become increasingly concerned about the outlook for some of its recently launched therapeutics, as well as some generic competition in a few of its mature drugs. If pressed, we still like the odds that Novartis will do well, but the outlook is a little cloudier than it’s been in a while. As noted above, we’ve been big fans of its Alcon unit for many years, and now that Alcon is independent, we decided to concentrate our investment there.”
6. Syneos Health, Inc. (NASDAQ:SYNH)
Number of Hedge Fund Holders: 33
P/E Ratio as of January 23: 12.50
Syneos Health, Inc. (NASDAQ:SYNH) is a North Carolina-based biopharmaceutical outsourcing solutions company operating North America, Europe, the Middle East, Africa, the Asia-Pacific, and Latin America. On January 11, Syneos Health, Inc. (NASDAQ:SYNH) reported that it entered a partnership with Shanghai Fosun Pharmaceutical's unit Fosun Pharma USA to launch lung cancer drug, Serplulimab. Syneos Health, Inc. (NASDAQ:SYNH) will offer full-service commercial support through its Syneos One team for launching Serplulimab, an anti-PD-1 antibody for the first line treatment of extensive stage small cell lung cancer in the United States.
According to Insider Monkey’s third quarter database, 33 hedge funds were bullish on Syneos Health, Inc. (NASDAQ:SYNH), compared to 28 funds in the prior quarter. Amy Minella’s Cardinal Capital is the leading position holder in the company, with 979,420 shares worth $46 million.
Like Pfizer Inc. (NYSE:PFE), Bausch Health Companies Inc. (NYSE:BHC), and Moderna, Inc. (NASDAQ:MRNA), Syneos Health, Inc. (NASDAQ:SYNH) is one of the most undervalued pharma stocks to buy according to hedge funds.
Here is what ClearBridge Small Cap Value Strategy has to say about Syneos Health, Inc. (NASDAQ:SYNH) in its Q3 2022 investor letter:
“Health care weighed on our relative performance. While the broader sector benefited from being perceived as more defensive and having greater resilience in the event of a recession, a drop-off in market liquidity due to rate increases and uncertainty over profitability hampered many of the smaller and more growth-oriented companies within the biotech space. Syneos Health (NASDAQ:SYNH), a clinical research company that provides clinical trial services to companies in the pharmaceutical, biotech and medical device industries, saw its stock decline after customers delayed scheduling new trials as they navigate the current economic uncertainty. While we continue to remain underweight the sector, we are diligently looking for health care names that align with our focus on high-quality companies with strong balance sheets and long-term value creation opportunities.”
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Disclosure: None.12 Most Undervalued Pharma Stocks To Buy According To Hedge Fundsis originally published on Insider Monkey.
