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Investment bank analysts up and down Wall Street are pounding the table on these stocks.
If you're looking for growth stocks that could make dramatic gains in a short amount of time, the healthcare sector has you covered. Recently, investment bank analysts have been pounding the table on a pair of beaten-down stocks that they expect to recover and soar over the next 12 months.
Shares of Viking Therapeutics (VKTX +0.01%) and NovoCure (NVCR +0.02%) are way down, but the experts who follow them have set price targets that suggest their best days are still ahead of us.
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Analysts aren't necessarily wrong to suggest these stocks can double or triple your money. That said, lofty targets that are miles above a stock's current price generally indicate more risk than most investors are ready to accept.
New investors often learn the hard way that sell-side analysts face few consequences when they have to adjust lofty price targets back down after things don't work out as hoped. Here's what you should know about Viking and NovoCure before risking any of your hard-earned capital.
On Aug. 19, Viking Therapeutics announced clinical trial results for its experimental obesity tablet that it described as "positive." The stock market disagreed with management's assessment and knocked 42% off the stock's price in a single trading session.
Analysts who follow Viking Therapeutics think the market beating went too far. A consensus price target of $86.92 per share at the moment implies a gain of 222% from the stock's recent price of $27.01 per share.
Treatment with the highest dosage of oral VK-2735 tested led to an average weight reduction of 12.2% after 13 weeks. This is impressive when you consider an oral version of Novo Nordisk's obesity medication, Wegovy, is under review by the Food and Drug Administration (FDA) right now after reducing weight by 13.6% over a 64-week period. Orforglipron, an oral obesity candidate from Eli Lilly, helped patients lose just 10.5% of their weight after 72 weeks.
While nobody doubts the efficacy of Viking's obesity tablet, it looks like the phase 2 venture trial protocol was too aggressive about raising the dosage. There was a 38% discontinuation rate in the highest dosage group compared to just 18% in the placebo group. Moreover, 35% of patients in the highest two dosage groups complained about vomiting compared with 10% of the placebo group.
Analysts are still hyper-bullish on Viking Therapeutics because it seems oral VK-2735 could produce competitive levels of weight loss with a much less aggressive dosage schedule. With the injectable version of VK-2735 in a phase 3 study, this company is the most advanced acquisition target for deep-pocketed pharmaceutical companies that want to enter the lucrative weight-management space.
Viking Therapeutics' market cap of just $2.7 billion at recent prices seems far too low for a company that could have a competitive weight-loss medication in late-stage clinical testing. Adding some shares to a diverse portfolio now could be a smart move for investors with a high risk tolerance.
Novocure makes battery-powered devices that apply magnetic fields proven to slow tumor growth. You can find its devices wrapped around the heads of thousands of brain cancer patients. Its stock surged late last year after the FDA approved its tumor-treating fields device to treat a relatively large population of lung cancer patients. Plus, last December, its pancreatic cancer treatment succeeded in a phase 3 clinical trial.
The stock is down about 64% from the peak it set last year because lung cancer sales haven't ramped up the way investors had hoped. As of June 30, just 94 lung cancer patients were using its devices compared to 4,194 brain cancer patients.
Wall Street analysts aren't too worried about the slower-than-hoped-for expansion of Novocure's lung cancer business. The consensus price target of $28.79 per share implies a gain of 142% from its recent price of $11.91 per share.
A slow launch is especially disappointing for Novocure because the company is still losing money. Luckily, it finished June with a large $911 million cash balance after losing $77 million in the first half of the year.
Before the end of September, Novocure expects to submit an application to the FDA for the treatment of pancreatic cancer. In the phase 3 Panova-3 trial, adding its device to standard care reduced patients' risk of death by 18% compared to standard care alone.
Novocure's lung cancer launch has been slow because because the company doesn't sell treatment kits. It leases them out at a list price above $20,000 per month. Getting insurers to foot the bill for rare cases of brain cancer is difficult enough. Finding a level of reimbursement for the larger lung and pancreatic cancer populations that insurers and government payers accept could take a couple more years.
At recent prices, Novocure sports a $1.3 billion market cap that seems far too low for a company with multiple cancer treatments for sale. Adding some shares now and holding over the long run looks like the right move for investors with a strong risk tolerance.
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