Why GW Pharmaceuticals, Revance Therapeutics, and Allergan Are Today's 3 Best Stocks

M&A activity sends the S&P 500 decisively higher as GW Pharmaceuticals, Revance Therapeutics, and Allergan all jump by double digits.

Apr 22, 2014 at 5:15PM

The health-care sector may have been a major crutch for the broad-based S&P 500 during the past two months, but today it was its greatest savior, with merger and acquisition activity galore driving the index to the upside.

Longview

Also helping out was the fact that housing data wasn't a death knell for the markets today. Existing home sales for March dipped fractionally to an annual rate of 4.59 million units. This is down from an annual rate of 4.6 million homes in February, but right in line with economists' expectations. With 30-year mortgage rates still at attractive levels despite $30 billion having been reduced from QE3, there is clear optimism from investors that the complete removal of QE3 won't shoot lending rates higher and cripple homebuilders.

The big news, though, was the big M&A activity within the big pharma sector. Novartis (NYSE:NVS) was a big component to that with it announcing the purchase of GlaxoSmithKline's oncology drug division for up to $16 billion, as well as the disposition of its animal health division to Eli Lilly for $5.4 billion, and the sale of its vaccine division to Glaxo for just more than $7 billion. M&A activity demonstrates big pharma's willingness to take on risk and stay innovative, which is generally viewed as positive news by investors.

By day's end, the S&P 500 had risen for its sixth-consecutive session, gaining 7.66 points (0.41%), to close at 1,879.55.

Laboratory

Source: GW Pharmaceuticals.

Topping the charts and "flying high" per se is GW Pharmaceuticals (NASDAQ:GWPH), a biopharmaceutical company that discovers cannabinoid compounds from cannabis plants and utilizes them to alter biologic pathways in patients. Shares gained 32.1% on the day after Morgan Stanley initiated coverage on the company with an "overweight" rating and $103 price target, implying upside of more than 100% based on yesterday's closing price. In addition, CNBC talk-show host Jim Cramer also vouched his support for the company as the top choice to play the marijuana craze. While I do agree that GW Pharmaceuticals is more than just a play on science as it does have Sativex approved in a number of EU countries, the drug itself hasn't sold well since coming to market, and it remains to be seen whether or not the company can have any success in the U.S. Until I see a dramatic reduction in losses, I would suggest keeping your distance.

Pulling up a close second was clinical-stage biopharmaceutical company Revance Therapeutics (NASDAQ:RVNC), which advanced 25.8% after reporting positive results from its phase 1/2 study involving RT002 as a treatment for the reduction of frown lines. According to the results from its study, 94% of the 48 patients with moderate to severe frown lines prior to treatment had either "none" or "mild" frown lines at maximum frown four weeks after treatment. Furthermore, the therapy showed an impressive duration of treatment at 29.4 weeks, or a little more than seven months, in the fourth patient cohort. While I do believe that Revance is parked in a hotbed of growth in terms of aesthetic pharmacologic products, I'm a bit worried by its current $600 million-plus valuation considering it has no FDA-approved therapies. Like GW Pharmaceuticals, I would consider taking a step back here and waiting for more concrete results.

Finally, shares of global pharmaceutical and medical device giant Allergan (NYSE:AGN) soared 15.3% after it received an unsolicited buyout offer from rival Valeant Pharmaceuticals (NYSE:VRX). Valeant's offer is for 0.83 shares of Valeant stock and $48.30 in cash for each share of Allergan, valuing Allergan at close to $161 per share. Although Allergan suggested that shareholders do nothing at the moment while it carefully reviews the offer, I would suggest shareholders consider this an early Christmas present and head for the exits. While Allergan has demonstrated top-line growth on the heels of dry-eye therapy Restasis, there have been a number of miscues, including its purchase of MAP Pharmaceuticals, which hasn't yielded an approval for Levadex as of yet, and disappointing results for DARPin, its experimental vision-loss therapy. Simply put, Allergan is expensive here given its growth potential, and the possibility that this deal could fall through would give me (if I were a shareholder) all the more reason to cash in my chips.

These three health-care stocks may have soared today, but they may not be able to hold a candle to this top stock by the end of the year
There's a huge difference between a good stock and a stock that can make you rich. The Motley Fool's chief investment officer has selected his No. 1 stock for 2014, and it's one of those stocks that could make you rich. You can find out which stock it is in the special free report, "The Motley Fool's Top Stock for 2014." Just click here to access the report and find out the name of this under-the-radar company.

Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong.

The Motley Fool owns shares of, and recommends Valeant Pharmaceuticals. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers