It's always exciting to pick up shares in a small company on the rise. But sometimes, even top players with major revenue or profit can offer your portfolio a boost. They may slip -- and even remain in the doldrums for a while. We know, however, that there are reasons for the stocks to eventually rebound and deliver long-term gains.
The following are three healthcare stocks that may do just that. Wall Street predicts they could rise more than 40% in the coming 12 months. And after lackluster performance in recent times, right now might be a good entry point. Let's take a closer look at each.
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1. Teladoc
Teladoc Health (TDOC 0.30%) shares have slipped more than 18% over the past three months. Why the decline? It all has to do with Teladoc's success last year. Revenue soared 98% as people flocked to the company's online medical visits during the pandemic, as total visits grew 156%.
Now, investors worry Teladoc will see business wane post-pandemic. But there's one big clue indicating that won't happen, and that's Teladoc's second-quarter performance.
Online visits and revenue grew 28% and 109%, respectively, in that quarter, compared to the year-earlier period. And the year-earlier period was during the worst of the pandemic. So we're seeing that even as business returns to normal, patients continue to rely on Teladoc. That will drive revenue and overall growth in the coming years.
Wall Street's average analyst estimate predicts Teladoc shares will rise to $193.80 in the coming 12 months. That would mean a 49% gain from today's level.
That may not happen. Investors might want to see several quarters of visit and revenue increases before backing Teladoc.
But that's OK. Teladoc is in the early days of its story. Long-term investors won't mind waiting for Teladoc's booming business to translate into share-price performance.
2. Vertex Pharmaceuticals
Vertex Pharmaceuticals (VRTX 0.10%) stock has disappointed since the company reported a clinical-trial failure in liver and lung disorder alpha-1 antitrypsin deficiency a year ago. The shares have dropped more than 30% since. Investors worry Vertex is struggling to expand beyond its core business of cystic fibrosis (CF) treatment.
Here's why I'm not worried. First, Vertex is a clear leader in CF and predicts that leadership will last until at least the late 2030s. Second, CF isn't a small business. Vertex generated more than $6 billion in revenue and more than $2 billion in profit last year. These measures are on the rise. At the same time, the stock is trading at only about 14 times forward earnings estimates.
VRTX Price-to-Earnings Ratio (Forward) data by YCharts.
Finally, Vertex has what it takes for success outside of CF. The company aims to file for regulatory approval of its gene-editing therapy for blood disorders in the coming 18 to 24 months. And it has accumulated more than $6 billion in cash. That means it also could buy a late-stage program at any point.
Wall Street's average prediction calls for a 44% gain in the shares from today's level in the coming 12 months. Vertex's progress in areas outside of CF are key to getting there. For the long term, I would expect share increases if Vertex brings the gene-editing candidate to market or buys a promising late-stage candidate.
3. Biogen
Competition has eroded sales in Biogen's (BIIB -0.85%) main business of multiple sclerosis (MS). The company even says sales declines of blockbuster Tecfidera will weigh on gross margin this year.
Biogen launched a newer drug -- Vumerity -- two years ago to replace Tecfidera. But so far, the product hasn't come near to compensating for lost revenue.
Investors had high hopes for Aduhelm, Biogen's first Alzheimer's treatment. The U.S. Food and Drug Administration approved the product this spring, but the launch has been slow, according to Stat News.
Aduhelm is controversial. Some doctors say clinical-trial data don't support its efficacy. And they're not recommending it to patients.
All of this sounds negative, but Biogen may be at a turning point. The company is expanding its reach in neuroscience-disease areas. Biogen and partner Eisai last month started a rolling submission for the potential approval of another Alzheimer's candidate. The company has five other candidates in various treatment areas involved in phase 3 studies.
Wall Street expects the stock to climb 40% in the coming 12 months. This could happen if Biogen shows progress in Aduhelm use or in its pipeline programs.
If it doesn't, all isn't lost. I think this biotech giant will eventually succeed in its transformation -- but investors may have to be patient and expect some turbulence along the way.
