Some stocks are sort of like the late comedian Rodney Dangerfield; they "don't get no respect." Others get some respect, but not the respect they probably deserve. Their market valuations just don't reflect their full potential.
We asked three Motley Fool contributors to point out some of those underrated stocks that they think are smart picks to buy in April. Here's why they chose Axsome Therapeutics (AXSM 2.81%), Johnson & Johnson (JNJ 0.74%), and Pfizer (PFE -0.02%) as opportunities that especially stand out.
Multiple catalysts are on the way for Axsome Therapeutics
Prosper Junior Bakiny (Axsome Therapeutics): Last year, Axsome Therapeutics' share price doubled, partly due to the FDA approving its depression medicine Auvelity for use. But 2023 isn't shaping up to be great for the biotech, at least so far. The company's stock is down by 19% since the start of the year.
But investors should view this as an opportunity to add shares of Axsome Therapeutics to a well-diversified portfolio, as the drugmaker has several potential catalysts coming. Perhaps the most important catalyst concerns AXS-07, a candidate treatment for migraines that failed to earn approval from the U.S. Food and Drug Administration (FDA) in 2022.
The agency pointed to manufacturing issues as the problem, meaning Axsome Therapeutics won't need to run additional clinical studies on the drug. It plans to resubmit its application for AXS-07 to the FDA later this year. Meanwhile, the biotech intends to start a pivotal study for Auvelity as an aid for smoking cessation in the fourth quarter.
Axsome Therapeutics is also running a phase 3 study for AXS-12 as a potential treatment for narcolepsy (a sleep disorder), and it expects to report top-line results from that soon. It also plans to send an application to the FDA for AXS-14, an investigational therapy targeting fibromyalgia, a chronic disorder that causes pain and sleeping issues, sometime this year.
Lastly, Axsome plans to start a late-stage study of its drug Sunosi targeting ADHD in the first half of this year. These developments should have positive impacts on Axsome Therapeutics' stock performance. And even more importantly, the biotech is moving ahead on important clinical and regulatory steps that will allow it to expand its product lineup in the next few years.
Axsome Therapeutics' market cap of around $2.6 billion doesn't fully reflect the company's potential, at least in my view. That's what makes the company a great underrated stock to buy in April.
Johnson & Johnson is trading at a surprising discount
David Jagielski (Johnson & Johnson): When a top healthcare stock goes on sale, investors should consider jumping at the chance to buy it. That's the situation with Johnson & Johnson right now. Since the start of the year, the stock has slumped by 13% and now trades near its 52-week low. It's valued at 14 times its forecast earnings -- a bargain when you consider the average healthcare stock trades at a forward price-to-earnings multiple of 17.
So what's holding down this stock? The company's legal issues are never too far away. After an appeals court judge recently quashed J&J's attempt to have a subsidiary declare bankruptcy -- a subsidiary created as part of its attempt to perform a controversial maneuver known as the "Texas two-step" aimed at minimizing its liabilities relating to lawsuits over asbestos in its talc baby powder -- investors are rightfully concerned that the company could be facing significant payouts. The issue is by no means over. Johnson & Johnson continues to fight the dismissal of the bankruptcy filing and is taking the matter to the Supreme Court.
But this company has generated $77 billion in free cash flow over the past four years. I'm confident that even if it is ordered to make significant payouts in those lawsuits, it could afford to do so, and that it's a calculated risk worth taking. I also doubt a judge would levy penalties so large as to destroy a business the size of Johnson & Johnson. Nonetheless, the news that the company's effort to limit its potential liabilities from those lawsuits had hit a roadblock is likely why its stock isn't doing better this year, as its share price tumbled following that latest development.
However, for investors who are willing to look past that and focus on the company's otherwise strong operations and long-term growth opportunities, Johnson & Johnson is an underrated buy. The healthcare giant is spinning off its slow-growing consumer health business to focus more on pharmaceuticals and medical devices. And although its top-selling drug Stelara will lose exclusivity this year, Johnson & Johnson is confident that it can grow its pharmaceutical business to $60 billion in revenue by 2025, and that's without factoring potential in mergers and acquisitions. In 2022, pharmaceutical sales totaled $52.6 billion.
On top of it all, Johnson & Johnson is also a Dividend King that has increased its payouts for 60 consecutive years. In April, it will likely extend that streak to a 61st year.
With an already solid yield of 3% at the current share price, the company's attractive payout and solid track record only sweeten the deal for prospective investors. Investors shouldn't hesitate to jump on this well-known but underrated healthcare stock.
Pfizer is stronger than it appears at first glance
Keith Speights (Pfizer): Pfizer has so many woes that a country song could be written about it. Sales of its enormously successful COVID-19 products -- vaccine Comirnaty and antiviral therapy Paxlovid -- are expected to plummet in 2023. Pfizer faces a loss of exclusivity for several of its top-selling products over the next few years. Unsurprisingly, the stock has fallen by more than 20% year to date.
But I think that Pfizer is stronger than it appears at first glance. Sure, sales for Comirnaty and Paxlovid will fall significantly this year. However, the company projects strong rebounds in sales for both products in 2024. There's also a possibility that the Chinese market will open up for Paxlovid, which would boost revenue even more.
What about those top products losing exclusivity? Pfizer anticipates that its launches of new non-COVID-19 products through the first half of 2024 will more than offset any losses stemming from drugs losing exclusivity. That doesn't factor in any other potential new product launches in the second half of this decade.
Don't forget Pfizer's wheeling and dealing. The company thinks that it will add roughly $25 billion in revenue by 2030 from business development. It has already made headway on this front recently with its announcement of plans to acquire Seagen.
My view is that Pfizer stock is looking increasingly attractive with a string of recent regulatory wins and progress with its pipeline. I also like the company's high dividend yield of nearly 4.1%. With payouts of that size, Pfizer doesn't have to deliver too much share price growth to beat the market.
