What happened
Healthcare stocks, on balance, had a great start to the week today. Cancer companies in particular posted strong gains almost across the board Monday. For instance, the stock of Clovis Oncology (CLVS) ended the day up by 15.2%, shares of Immunomedics (IMMU) hit a high of 10.2% before ultimately closing up by 8.5%, and Puma Biotechnology (PBYI -2.02%) printed a 16.3% gain today.
The odd part to this rising-tide phenomenon is that none of these companies issued a single press release or market-moving Securities and Exchange Commission filing Monday. Instead, this sea of green appears to be the result of institutional investors fleeing weaker parts of the market like oil in favor of safe havens like healthcare. Cancer stocks, after all, should be essentially immune to the economic impacts of the COVID-19 pandemic, given that most patients can't skip out on lifesaving treatments.
Image Source: Getty Images.
So what
If this flight-to-safety thesis is true, then Clovis, Immunomedics, and Puma would arguably all make outstanding vehicles to gain exposure to the high-growth oncology space. Each of these stocks is grossly undervalued relative to its long-term value proposition. Wall Street's 12-month price targets on these names underscore this point nicely. Even after today's sizable moves, for instance, Clovis, Immunomedics, and Puma are still trading well below their 12-month price targets.
Why are these three cancer stocks undervalued right now? Clovis and Puma have both struggled to gain the confidence of investors in this volatile market due to the uncertain commercial outlook for their flagship cancer meds. Immunomedics, on the other hand, scored a major late-stage trial win with its triple-negative breast cancer drug candidate sacituzumab govitecan earlier this year. Even so, the company's stock has yet to truly price in the full value of this positive clinical outcome, presumably because of the unfavorable market conditions in general.
Now what
Are these suddenly red-hot biotech stocks still worth buying? In a word, yes. Clovis should grab an important label expansion for its ovarian cancer med Rubraca later this year, a pivotal event that has the potential to be an inflection point for the company's commercial operations.
Puma, on the other hand, still looks like a decent buy based on the long-term commercial prospects of its breast cancer med Nerlynx. The drug's sales have been slowed down by its onerous side-effect profile, but it should nevertheless still achieve at least $300 million in annual sales. Puma's market cap, by contrast, is only $440 million at the time of this writing.
And Immunomedics stands out as a fantastic buyout target. Triple negative breast cancer is a high-value indication for which few drugs have panned out in clinical studies. Immunomedics, in turn, should fetch a healthy tender offer if sacituzumab govitecan does indeed get the green light from regulators.
