Please ensure Javascript is enabled for purposes of website accessibility

2 Dirt-Cheap Growth Stocks to Buy Now

By George Budwell – Apr 9, 2020 at 10:10AM

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

Heron Therapeutics and Intercept Pharmaceuticals are too cheap to ignore right now.

Most major U.S. stock indices have rebounded sharply since hitting a multiyear low on March 23, 2020. The Dow Jones Industrial Average has gained a healthy 26% over the last two and a half weeks, while the S&P 500 has risen by nearly 23% during the same period. Despite this remarkable turnaround, though, there are still tons of equities trading in bargain territory. Small to mid-cap growth stocks, for instance, have yet to fully participate in what is turning out to be a V-shaped recovery in many respects. 

Which growth stocks are the best buys right now? Heron Therapeutics (HRTX 5.24%) and Intercept Pharmaceuticals, Inc. (ICPT -14.99%) are two biopharmaceutical companies that could easily double in value before the end of the year. Here's a brief overview of the pros and cons associated with each stock.

A man drawing a positive-trending arrow that points to 2020

Image source: Getty Images.

Heron Therapeutics: A major catalyst is close at hand 

Heron, a commercial-stage biotech, is down by nearly 50% from its 52-week high at the moment. Investors have punished this small-cap biotech stock mainly due to the exceedingly slow pace of the regulatory process for the company's experimental pain medication HTX-011. In April 2019, the U.S. Food and Drug Administration (FDA) rejected the drug over manufacturing issues. Following a successful resubmission, the agency then extended the drug's review period by three months last February to June 26, 2020. Unfortunately, biotech investors aren't exactly known for their patience. 

Heron's shares have been particularly sensitive to HTX-011's regulatory cycle for two reasons. First, the company's chemotherapy-induced nausea and vomiting (CINV) franchise has been slowly gaining momentum over the past few quarters, with net annual sales coming in at a respectable $146 million for the whole of 2019. But this CINV franchise was never expected to be a really big money-maker for the company. In fact, Heron's CINV sales are forecast to drop by almost 50% in 2020 before returning to growth in 2021. 

That brings us to the second reason. HTX-011 is undoubtedly the company's potential star product. There is a well-documented need for effective, non-opioid painkillers in the acute care setting. HTX-011 appears capable of filling that need based on its late-stage trial data. Heron, in turn, believes HTX-011 could generate at least $1 billion in annual sales. What's more, the drug should have an exceptionally long commercial shelf life given that the vast majority of non-opioid painkillers have failed in late-stage trials. 

The key takeaway is that Heron has an above-average chance at getting a regulatory approval for a potential blockbuster pain medication by the middle of 2020. That's an enormous catalyst for a company with a market cap of just $1.26 billion at the time of writing.   

Intercept: A key first-mover advantage in NASH

Intercept's stock is presently down by 46% relative to its 52-week high. Investors have soured on this name thanks to the COVID-19 pandemic and the safety issues surrounding its non-alcoholic steatohepatitis, or NASH, a candidate called Ocaliva (obeticholic acid).

The background is that Ocaliva is already approved for another non-viral liver disease known as primary biliary cholangitis, an indication that is forecast to generate about $300 million in peak sales for the drug. Intercept's current goal is to expand Ocaliva's label in both the U.S. and the EU to include NASH patients with liver fibrosis.

The big deal is that an estimated 20 million Americans may suffer from this potentially deadly liver disease. What's more, there are no approved therapies for NASH in either the U.S. or the EU. Ocaliva, therefore, could become the first drug approved for this high-value indication, which may translate into billions in annual sales. 

The catch is that Ocaliva's label expansion is far from a sure thing. In late-stage testing, the drug produced a worryingly high rate of pruritus (itching) at its most effective dosage as well as elevated LDL levels (bad cholesterol). Regulators may overlook these safety signals given the tremendous need for a viable NASH therapeutic, along with the fact that Ocaliva might be the only game in town for a few years. But it's never a good idea to completely ignore important safety data, especially when it comes to a regulatory decision.

The big picture is that Intercept might have a mega-blockbuster NASH product on its hands -- in effect, a drug capable of generating over $5 billion in annual sales. That said, there is a substantial regulatory risk associated with this stock. Thus, investors probably shouldn't go hog-wild with this name ahead of Ocaliva's regulatory decision, which is currently slated for June 26, 2020. A smallish position in this mid-cap biotech stock, though, might be a smart move. After all, Intercept's shares could quite possibly double on a positive regulatory decision this summer.    

George Budwell owns shares of Intercept Pharmaceuticals. The Motley Fool recommends Intercept Pharmaceuticals. 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

Heron Therapeutics, Inc. Stock Quote
Heron Therapeutics, Inc.
$4.22 (5.24%) $0.21
Intercept Pharmaceuticals Stock Quote
Intercept Pharmaceuticals
$13.95 (-14.99%) $-2.46
Dow Jones Industrial Average (Price Return) Stock Quote
Dow Jones Industrial Average (Price Return)
$28,725.51 (-1.71%) $-500.10
S&P 500 Index - Price Return (USD) Stock Quote
S&P 500 Index - Price Return (USD)
$3,585.62 (-1.51%) $-54.85

*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 10/02/2022.

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.