Please ensure Javascript is enabled for purposes of website accessibility

3 Stocks Under $5 That Could Make You Rich

By George Budwell - Jul 23, 2017 at 8:40AM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

These three dirt-cheap healthcare stocks offer enormous upside potential for risk-tolerant investors.

Stocks with share prices under $5 are rarely worth owning. On the rare occasion, however, small-cap healthcare stocks can be glaring exceptions to this general rule.

Novavax (NVAX -5.01%), Geron Corp. (GERN -7.44%), and Rite Aid Corporation (RAD 1.11%), for example, have all been through some seriously stormy weather that's crushed their share prices. With better days possibly on the horizon, though, these three beaten-down healthcare stocks could mount historic comebacks. Let's dig deeper to find out why.

A $5 bill.

Image source: Getty Images.

Novavax: Down, but not out

Heading into the late-stage readout for its respiratory syncytial virus (RSV) fusion protein nanoparticle vaccine candidate in elderly adults, Novavax was a Wall Street darling. The vaccine's strong mid-stage results, after all, seemed to indicate that the company was close to bringing a multibillion-dollar product to market.

Then disaster struck. The vaccine badly missed its primary endpoint in this all-important trial, and Novavax's share price imploded as a result.

According to the company, the vaccine's dismal late-stage results in elder adults can most likely be attributed to an extremely mild RSV season during the course of the trial. As a result, management quickly decided to launch yet another mid-stage trial assessing different dosing regimens of the vaccine in older adults. And with this trial nearing a top-line readout of its own, the fate of the vaccine's elderly adult indication could be known sooner rather than later.   

Long story short, if Novavax is proved correct in that the underlying problem was a mild RSV season and not a lack of potency in the vaccine itself, this stock could rebound in a big way. This vaccine's peak sales were pegged to reach upwards of $2 billion, after all, if it's approved for both maternal immunization and in older adults as a preventative treatment for RSV. That sales projection dwarfs Novavax's present market cap of $418 million. 

Geron: A novel cancer stock

The cancer drug market is the fastest growing therapeutic area right now, thanks to several breakthroughs for various hard-to-treat malignancies. One unfortunate offshoot of this innovation boom, though, is that numerous drugmakers are trying to simply imitate the success of their rivals in areas such as immune-modulating antibodies, cell therapies, and kinase inhibitors. The net result is a glut of medicines that largely fail to cover new territory.

The small-cap biotech Geron, however, is bucking this trend by developing a best-in-class telomerase inhibitor called imetelstat, which is racing toward critical clinical milestones for its ongoing trials in the blood disorders myelodysplastic syndrome and myelofibrosis. These two initial indications have the potential, at least on paper, to transform imetelstat into a blockbuster product. 

Even so, the market clearly isn't a big believer in this juicy value proposition, and perhaps for good reason. Geron's current market cap of $445 million appears to reflect the market's deep suspicion of unproven cancer therapies in general. And that's arguably a reasonable stance, given that the vast majority of experimental cancer therapies flame out during clinical trials. In other words, imetelstat's chances of actually reaching the market are exceedingly slim -- that is, if history is any guide.    

Rite Aid: Smaller but more efficient

Rite Aid's stock has been in freefall mode ever since its merger with Walgreens Boots Alliance fell through in late June, and subsequently metamorphosed into an asset sale. The unimpeded stampede out of this embattled drugstore-chain stock, though, may be way overdone at this point, for a couple of reasons.

A pharmacist hands a bag containing a prescription to a customer.

Image source: Getty Images.

First off, Rite Aid is walking away with roughly $5.5 billion from its asset sale with Walgreens. That's a nice chunk of change that can be used to both help the company get out from underneath its crushing debt levels and remodel its remaining stores to install attractive features such as the Wellness layout.  

Another key issue is that Rite Aid can now buy generic drugs sourced through Walgreens at cost for a period of 10 years. This arguably under-appreciated aspect of this asset sale should help the company improve margins in a meaningful way. Generic drugs, after all, have steadily made up a larger and larger percentage of total U.S. prescriptions over the past decade, and this trend is expected to continue as more branded drugs lose patent protection. 

But Rite Aid is still in a difficult position. The company lacks the size necessary to negotiate from a position of strength with third-party payers regarding prescription drug prices, and this divestiture of around half its stores certainly doesn't help with this touchstone issue.

But this sizable influx of cash should at least help it delever, regroup, and perhaps return to growth as a more efficient operation overall. So if management plays its cards right, Rite Aid could conceivably transform into an outstanding comeback story.  

Are any of these "cheap" stocks worth buying right now? 

These three healthcare stocks all have sub-$5 share prices for very good reasons. But if you're comfortable with a healthy dose of risk, each stock does offer considerable upside potential. Novavax, if the stars align with its RSV program, could come roaring back. Geron is in position to potentially capture a big chunk of the multibillion-dollar blood cancer market. And Rite Aid's comeback story as a smaller yet more efficient organization has a real shot at success. 

While these beaten-down stocks do have rather attractive upside potentials, however, they could all crash if things don't go according to plan. In other words, these are not stocks well suited for conservative investors, to put it mildly.  

George Budwell has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Rite Aid Corporation Stock Quote
Rite Aid Corporation
$9.09 (1.11%) $0.10
Geron Corporation Stock Quote
Geron Corporation
$2.24 (-7.44%) $0.18
Novavax, Inc. Stock Quote
Novavax, Inc.
$57.25 (-5.01%) $-3.02
Walgreens Boots Alliance, Inc. Stock Quote
Walgreens Boots Alliance, Inc.
$39.48 (1.26%) $0.49

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.