The jolly fellow with a white beard and a red-and-white suit doesn't just bring presents to children. He sometimes delivers gifts to investors, too.
Years ago, investors observed that a phenomenon dubbed the Santa Claus rally often occurred during the year-end holidays. In many cases, stocks rose over the last five trading days of the year and the first two trading days of the new year.
Three Motley Fool contributors identified stocks they think could soar in a Santa Claus rally. Here's why they picked Gilead Sciences (GILD 0.76%), NovoCure (NVCR 4.18%), and Pfizer (PFE 3.64%).
A much-anticipated approval
Prosper Junior Bakiny (Gilead Sciences): There is nothing like good news from the clinic or on the regulatory front to send shares of drugmakers higher. Biotech giant Gilead Sciences thought it could receive a major approval in the U.S. that could come down just a couple of days after Christmas. The U.S. Food and Drug Administration (FDA) set a PDUFA action goal date (or the deadline for feedback on the application) of Dec. 27 for an approval decision on lenacapavir in treating HIV.
Good news came earlier for Gilead, though. The FDA approved lenacapavir (which will be marketed under the brand name Sunlenca) on Dec. 22.
Gilead Sciences is already a leader in the HIV drug space. In the third quarter, the company's Biktarvy held a 45% market share in the U.S. Even so, once lenacapavir hits the ground running, it will be a meaningful addition to the biotech's portfolio since it's the first six-month, long-acting HIV regimen.
Many competing HIV drugs are taken monthly or bi-monthly. One that is only needed twice a year would have an obvious edge, and no doubt many eligible patients will opt for it instead. Lenacapavir won European approval in August. And it could have earned the green light in the U.S. even earlier if it hadn't been for manufacturing issues FDA officials spotted in Gilead's regulatory application.
Gilead's shares didn't jump on the news of the FDA approval. However, that's mainly because the overall market sold off sharply. If the Santa Claus rally materializes, the biotech stock could move significantly higher. Of course, investors should still focus on the company's long-term prospects. Gilead Sciences doesn't disappoint on that front either. It boasts many other exciting pipeline candidates, solid HIV and cancer businesses, and it's an excellent dividend stock. In short, there are plenty of reasons to hold shares of this stock through the end of the year and beyond.
Big news on the way
Keith Speights (NovoCure): I think that NovoCure is a top stock to buy hand over first before the end of the year. And my view has nothing to do with whether or not a Santa Claus rally occurs for the overall stock market.
NovoCure has some really big news on the way in early 2023. The company plans to announce the results from a late-stage clinical study evaluating its tumor-treating fields (TTFields) therapy in treating non-small cell lung cancer (NSCLC).
TTFields are electrical fields that disrupt the division of tumor cells. The therapy has already won FDA approvals for treating glioblastoma (brain cancer) and mesothelioma as well as approvals in other countries as a glioblastoma treatment.
But NSCLC could open up a much bigger opportunity for NovoCure. The indication is the No. 1 type of lung cancer. More than 236,000 diagnoses of NSCLC will likely be made this year. By comparison, the estimated number of glioblastoma diagnoses in 2022 is only around 13,000.
Positive results from NovoCure's phase 3 study should send the stock soaring. However, an overall market surge at the end of this year would likely spur investors to buy more heavily ahead of the news.
Pfizer's rally could just be getting started
David Jagielski (Pfizer): One stock that could be due for a prolonged rally is healthcare giant Pfizer. Its shares have already been rising in recent months, with the stock now up 17% since the start of October. Cooling inflation rates have made investors more bullish on growth stocks, and Pfizer has benefited from that trend.
However, more of a rally could still be justifiable given that the stock is only trading at 11 times its future earnings (which are based on analyst expectations of how it will perform next year). That's modest compared to the average healthcare stock, which investors are paying a multiple of 17 for.
Given its low valuation, the stock could be a surefire winner in 2023. The company will undoubtedly see its revenue drop next year as demand for its COVID-19 vaccine and pill will slow down. But COVID isn't over just yet as case numbers have been rising of late, suggesting that demand for booster shots could still be strong next year. Plus, a shift to the commercial markets means Pfizer will also be able to negotiate higher prices for its vaccine and pill, and that could help offset some of the decline in demand.
The company has also been busy with acquisitions over the past few years, which should help improve its long-term growth prospects. Most recently, in October, Pfizer completed its $5.4 billion acquisition of Global Blood Therapeutics, a company that focuses on developing treatments for sickle cell disease. And with the big drugmaker sitting on cash and short-term investments totaling $36 billion, it has plenty of room to make more big moves in the future.
While there's some risk and uncertainty ahead for the business, Pfizer's impressive track record, strong financial resources, and low valuation could make this an underrated stock to buy right now. And judging by its recent rally, investors are taking note of that. If there's an end-of-year rally in the markets, look for Pfizer's stock to build on its recent gains.
