There's a reason why the Rocky movies were so successful: Nearly everybody loves a comeback. That isn't just true in entertainment; investors like comeback stories, too.
We asked three Motley Fool contributors to pick beaten-down stocks that they think could soar in the second half of 2022. Here's why they chose Axsome Therapeutics (AXSM 2.45%), Maravai Lifesciences (MRVI -1.72%), and Novocure (NVCR -0.52%).
This biotech's rebound is just getting started
Prosper Junior Bakiny (Axsome Therapeutics): Shares of small-cap biotech Axsome Therapeutics are down by more than 20% in the past year despite a recent surge. That still lags well behind the performance of the S&P 500 over the same period. But Axsome Therapeutics has been rebounding well in the past month or so for a reason -- and that could enable its stock to rise even more in the coming months.
In a regulatory filing late last month, Axsome Therapeutics announced that it had received proposed labeling from the U.S. Food and Drug Administration (FDA) for AXS-05, a potential therapy for major depressive disorder. Why was this huge news? The development strongly signals that the FDA will approve the medicine soon.
AXS-05 initially had a PDUFA goal date (the latest date by which the FDA was supposed to complete the review of the drug) of Aug. 22, 2021. However, the agency extended the review process because of deficiencies in Axsome Therapeutics' application. These deficiencies precluded labeling discussions at the time. Now, though, no extra clinical trial will be needed, nor will Axsome Therapeutics be required to submit a brand-new application.
That's excellent news for the company and its shareholders. Once the final word from the FDA comes, its stock could soar.
Axsome Therapeutics' market cap currently stands at close to $1.7 billion. In my view, the commercial opportunity of AXS-05 and Sunosi -- a treatment for daytime sleepiness in narcolepsy patients that Axsome Therapeutics recently acquired -- exceeds the company's current market cap. That's what makes the biotech attractive at current levels.
And that's before we add the rest of the company's late-stage pipeline, including migraine treatment AXS-07, which failed to earn FDA approval earlier this year. The agency didn't highlight problems with AXS-07's safety or efficacy, though. Eventually, it looks likely to earn approval, too.
Axsome Therapeutics should be poised to perform well in the second half of the year thanks to the potential approval of AXS-05 and an attractive late-stage pipeline. That's also why the biotech's long-term prospects look bright.
This mid-cap stock has been posting impressive results
David Jagielski (Maravai LifeSciences Holdings): Not all stocks that have been crashing this year have businesses that are performing badly. Maravai LifeSciences is a great example. When the healthcare company released its latest results in May, it actually upgraded its guidance for the year. While Maravai forecast that its revenue will remain unchanged (generating between $920 million and $960 million in sales), it bumped up its adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) by $20 million.
Investors may be a bit hesitant to buy the stock because its business has gotten a boost from COVID-19 that could evaporate in the future. The company's CleanCap capping technology is used by vaccine makers. Its largest customers are Pfizer and BioNTech, which accounted for 70% of Maravai's sales through the first three months of 2022.
However, the company's core business (factoring out the COVID-19 revenue) still grew at a rate of 55% year over year. And Maravai is pursuing even more opportunities. CEO Carl Hull said on the earnings call in May that 18 of the top 20 large pharma companies (in terms of research and development spend) are working with Maravai on at least one messenger RNA (mRNA) program.
Shares of Maravai have fallen more than 40% this year. But with the company potentially diversifying its customer base and still generating solid growth numbers, the stock looks like an underrated buy right now. Its operations are incredibly lean, with Maravai reporting gross profit margin of more than 83% in the trailing 12 months. And at just 13 times earnings, the stock could be overdue for a rally, as it can offer investors a great way to tap into the long-term potential for mRNA therapeutics and vaccines at a discounted price.
A monster winner in the making
Keith Speights (Novocure): Shares of Novocure have fallen around 16% so far in 2022. The big decline for the stock, though, came last year. Novocure's shares are roughly 60% below their 52-week high.
Much of this sell-off was the result of the overall malaise for biotech stocks. However, Novocure has also seen its growth stagnate quite a bit. In the first quarter of 2022, revenue rose by only 2% year over year.
But I think that Novocure could make investors much richer in the second half of the year. I also believe that the stock could be a monster winner in the making over the longer term. My optimistic outlook is based on Novocure's late-stage pipeline.
The company has already won FDA approvals for its tumor-treating fields (TTFields) therapy in glioblastoma and mesothelioma. Novocure plans to announce results from a phase 3 study of the therapy in treating non-small cell lung cancer later this year. Data from three other late-stage studies targeting ovarian cancer, brain metastases, and pancreatic cancer are expected in 2023 and 2024.
These four indications represent a potential market that's 14 times bigger than Novocure's current market opportunity. While there's a possibility that TTFields could flop in the ongoing phase 3 studies, I like Novocure's chances.