Healthcare stocks have been surging ever since Donald Trump took office last January. As a result, there aren't too many attractive bargains remaining in this high-flying sector.
Even so, vaccine specialist Novavax (NVAX 11.12%) and drugstore chain Rite Aid Corporation (RAD 1.63%) are two laggards in the healthcare sector that might be compelling long-term buys right now. Read on to find out why.
Ever since its respiratory syncytial virus fusion (RSV F) vaccine failed in a pivotal study for elderly adults last year, Novavax has had trouble convincing investors that it has a viable path back from the brink of extinction. The company, after all, has lost over 90% of its value in the past 12 months, and is barely meeting the minimum bid requirement for the Nasdaq exchange in terms of its share price.
However, a new day may be dawning at this struggling biotech. With the its RSV F vaccine years away from possibly gaining a regulatory approval for either its pediatric or elderly-adult indication, the company has decided to pivot to the experimental flu vaccine, NanoFlu, as its next big value driver.
Approximately two weeks ago, Novavax launched a combined phase 1/2 study to assess NanoFlu in older adults. The trial is designed so that NanoFlu will be pitted directly against Sanofi's market-share-leading product, Fluzone High-Dose.
Long story short, Novavax is attempting to usurp Sanofi as the dominant flu vaccine maker, which would be a tremendous win for the tiny company. The flu vaccine market, after all, is presently valued at over $3 billion, and is still growing at a modest clip.
With this trial scheduled to read out before year's end, Novavax now has a clear catalyst on the calendar that could legitimately spark a much-needed comeback.
Time for a reboot
Rite Aid Corp. has been in no man's land this year due its planned merger with Walgreens Boots Alliance (WBA 1.74%) being scuttled by antitrust regulators, and its subsequent asset sale to the drugstore giant also being scaled back by regulators. In fact, Rite Aid's stock is presently trading at a four-year low, and it's still having trouble finding a bottom in the wake of the company's disappointing second-quarter results for its 2018 fiscal year.
Like Novavax, though, Rite Aid may be on the cusp of a dramatic turnaround.
There are two good reasons to think that better days may be ahead for Rite Aid. First and foremost, Rite Aid's reworked asset sale to Walgreens Boots Alliance has finally gotten the green light from regulators, which will provide an influx of $4.7 billion into the company's coffers. These funds will allow Rite Aid to both pay down a portion of its monstrous debt load and begin to remodel its remaining stores in an effort to boost foot traffic.
Second, Rite Aid has also undergone a substantial managerial shake-up, with Chairman Joseph Standley taking over full control of the CEO position from Ken Martindale, and Kermit Crawford assuming the role of president and chief operating officer. That's not to say that Rite Aid's woes can be pinned on the actions of prior management, but the company can arguably benefit from a fresh pair of eyes at this stage in the game.
Looking ahead, Rite Aid still has the herculean task of navigating the challenging reimbursement environment that's been weighing heavily on its top line of late. But with payers fighting tooth and nail to cut costs, that particular headwind doesn't appear to be going away anytime soon. But the drugstore chain is squeezing by with its Walgreens Boots Alliance asset deal -- whereby allowing its new management team to push forward with their own vision for the future of the company.
Are either of these cheap healthcare stocks worth buying right now?
Novavax and Rite Aid are undeniably cheap, with their respective share prices both occupying penny stock territory (i.e., less than $5) at the time of writing. A low share price, though, is rarely a strong buy signal. The cold, hard truth is that Novavax and Rite Aid are both going to need a good dose of luck to execute their respective comeback plans, and that fact muddies the picture on whether either of these stocks are attractive buys right now.
Novavax, for its part, absolutely needs its NanoFlu vaccine to produce compelling top-line results later this year; Rite Aid must get its debt under control and start increasing sales across the board. Neither of these scenarios is guaranteed, however. That's why these "cheap" healthcare stocks are arguably only suited for investors who are extremely comfortable with risk, and are willing to sacrifice safety for a shot at an unusual growth opportunity.