With the third quarter of 2023 rapidly coming to a close, U.S. equities have turned decidedly volatile over the past few trading sessions. While the exact cause of this turmoil isn't altogether clear, there is a good chance that a lot of it stems from institutional and high net-worth investors rebalancing their portfolios ahead of the start of Q4.
Which stocks stand out as compelling buys on this recent weakness? For my money, I like both Acadia Pharmaceuticals (ACAD 2.45%) and Tilray Brands (TLRY 1.71%) at current levels. Both companies are long-term growth plays to be sure, but their respective upside potentials could be considerable, to put it mildly. Here's why bargain hunters might want to catch these two falling knives.
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Acadia Pharmaceuticals: An attractive valuation
Last Thursday, Acadia Pharmaceuticals stock plunged by nearly 16% on a patent dispute. As a big fan of bargains, however, I view this double-digit sell-off as an attractive entry point for investors with an elevated tolerance for risk and an eye for potential market-beating opportunities.
The biotech has two commercial-stage products: Nuplazid for Parkinson's disease psychosis and Daybue for Rett syndrome. Taken together, some Wall Street analysts think these two drugs could haul in over $2 billion a year for the company within the next few years. That's an impressive revenue projection considering Acadia Pharmaceuticals presently has a market cap of only $3.46 billion. As such, it's not unrealistic to think this biotech stock could easily rise by 70% or perhaps more in the years ahead. A market cap of approximately 3 times annual sales isn't exactly a nosebleed valuation in biopharma after all.
What's more, Acadia Pharmaceuticals sports a robust clinical pipeline full of potential value creators in the areas of Alzheimer's disease, schizophrenia, and rare conditions like Prader-Willi syndrome. And the company's balance sheet is also on solid ground, with a cash position of approximately $375 million at last count. So while there is always substantial risk with early commercial-stage biopharma stocks due to a variety of issues, such as intellectual property disputes, regulatory setbacks, clinical failures, and slower-than-expected new drug launches, I think this latest pullback in Acadia Pharmaceuticals stock might be a good time to start picking up shares in small batches.
Tilray Brands: A top cannabis play
Canada's Tilray Brands has been on quite the ride over the past three months. Over this period, the marijuana and beverage company's shares have tracked higher by nearly 50%, but they have also fallen by almost 30% from their recent high. Tilray Brands stock has been exceptionally volatile of late because of three key issues:
- In August, Tilray Brands struck a tremendous asset deal with Anheuser-Busch to acquire eight beer and beverage brands. This deal significantly expands the company's beverage portfolio and further lessens the importance of cannabis product sales in the short term.
- The U.S. may be close to downgrading marijuana from Schedule I to Schedule III depending on the outcome of an ongoing review by the Drug Enforcement Agency. Such a move wouldn't make marijuana federally legal in the broad sense, but it would open the door toward more clinical studies and perhaps full legalization down the road.
- The U.S. Senate is poised to finally hold a vote on the Secure and Fair Enforcement (SAFE) Banking Act. If signed into law, U.S.-based cannabis businesses would have access to the full range of traditional financial services, such as commercial lines of credit and business loans. More importantly, this upcoming vote may be a positive sign that the U.S. is slowly but steadily moving toward full legalization.
What does this all mean for Tilray Brands? While the beverage deal is definitely a net positive, the U.S. political and regulatory movements aren't all that important to this Canadian marijuana company -- at least not right now. The fact of the matter is that Tilray Brands' unique value proposition probably won't become readily apparent until the U.S. legalizes cannabis at the federal level, making its stock a true long-term play on the promising cannabis space.
Now, there is an upshot to the current situation. Although these politically charged market conditions are indeed challenging for all cannabis-based businesses, they also create an opportunity for the best players in the industry to stand out from the crowd. Tilray Brands has a strong leadership team, a dominant position in several product segments, and a diversified revenue base that is not dependent on cannabis alone. So, if you're looking for a pot stock to buy and hold in perpetuity, Tilray Brands stock may be worth adding to your portfolio following its pullback from recent highs.
