Russia’s war on Ukraine is leading to globally increasing commodity prices, soaring inflation, and supply chain constraints, all causing volatility in the stock markets. The Fed’s recent interest rate hike and a warning that it will raise interest rates further to rein in inflation have compounded investor woes.
After all, which sectors will prove to be safe picks in this volatile environment? While many technology sector stocks are ripe for the picking at current valuations, there is another sector that could help investors ride out inflation. That sector is Healthcare.
Indeed, according to a GoodRx Health research report, prescription drug prices have historically risen faster than the rate of inflation. According to the report, while the prices of drugs have jumped 35% since 2014, the cost of all services and items has risen just 21%.
In this scenario, let us look at some of the top-rated analysts’ stocks in the healthcare sector that also have significant upside potential. Interestingly, the healthcare sector has the least number of Strong Buy ratings, among eight broad sectors.
10X Genomics, Inc. (NASDAQ: TXG)
10X Genomics is a life science technology company whose integrated solutions include consumables, software, and instruments for the analysis of biological systems. The company’s research platform enables a resolution and scale that is distinct and matches the complexity of biology.
The stock has tanked 52.3% year-to-date and closed at $69.56 on March 22. However, J.P. Morgan analyst Tycho Peterson remains bullish about the stock.
The analyst considers TXG’s Chromium, Visium and the upcoming Xenium product lines as “attractive” and the company is “well-positioned to penetrate its significant TAM [total addressable market].”
Moreover, analyst Peterson also considers TXG’s top-line growth as “significantly more attractive” to its peers. Indeed, in FY21, TXG’s revenues soared 64% year-over-year to $490.5 million.
However, the analyst lowered the price target from $190 to $140 to reflect the muted revenue outlook (FY22 year-over-year revenue growth expected to range between 22% and 28%) and rising uncertainties over the near term. Peterson’s current price target still implies an upside potential of 107.8% over pre-market trading levels on Wednesday.
Other analysts on the Street are also upbeat about the stock, with a consensus rating of Strong Buy based on four Buys and one Hold. The average TXG price forecast of $130 implies approximately 93% upside potential to pre-market trading levels on Wednesday.
Legend Biotech Corp. (NASDAQ: LEGN)
Legend Biotech is a biotechnology company headquartered in Somerset, New Jersey. The company is developing advanced cell therapies across a wide array of technology platforms.
While the stock has dropped 19.7% year-to-date, analysts continue to be optimistic about the company’s product pipeline.
In Q4, the U.S. Food and Drug Administration (FDA) approved CARVYKTI (ciltacabtagene autoleucel; cilta-cel), a B-cell maturation antigen (BCMA)-directed CAR T-cell therapy for the treatment of adults with relapsed or refractory multiple myeloma (MM) who have received four or more prior lines of therapy. MM is a type of cancer of plasma cells.
Moreover, the company’s two-year follow-up data for the CARTITUDE-1 study indicated “deep and durable responses of cilta-cel in patients with heavily pretreated MM.”
CARTITUDE-1 is “an ongoing Phase 1b/2, open-label, single arm, multi-center trial evaluating cilta-cel for the treatment of adult patients with relapsed or refractory multiple myeloma” who have previously received at least three prior lines of therapy.
Jeffries Group analyst Kelly Shi is optimistic about the CARTITUDE-1 study and believes that the “durability data will set a high bar and differentiate from other competitors.” The analyst thinks that cilta-cel has an “attractive clinical profile” and expects to see similar data in the Phase-2 portion of the CARTITUDE trial.
Shi has a Buy rating and a price target of $73 on the stock, implying an upside potential of 94.7% to early morning trading levels on Wednesday. The analyst’s price target is closer to the Street-high price target of $75 on the stock.
Other analysts on the Street are bullish about the stock with a consensus rating of Strong Buy based on five unanimous Buys. The average Legend Biotech price forecast of $65.60 implies approximately 75% upside potential to pre-market trading levels on Wednesday.
Penumbra, Inc. (NYSE: PEN)
Penumbra is a healthcare company that designs, develops, manufactures, and markets novel products for interventional therapies to treat neurovascular and vascular conditions. Since 2020, the company has also ventured into the immersive healthcare market with its products.
Shares of Penumbra have also been swept up in the market volatility, resulting in a decline in share price of about 25.1% year-to-date.
However, last week, BTIG analyst Ryan Zimmerman came away bullish and assigned a Buy rating to the stock after a call with Dr. Michael Saulino, a U.S.-based physical medicine and rehabilitation specialist. The analyst’s discussion with Dr. Saulino was centered around PEN’s REAL Immersive System.
PEN’s Real Immersive System is an immersive, proprietary, 3D computer-based technology platform that can benefit patients over a wide range of healthcare applications including rehabilitation, mental well-being, and cognition.
Analyst Zimmerman believes that PEN’s “near- to mid-term growth hinges on adoption in the less penetrated Peripheral Vascular and Immersive Healthcare markets,” which has a TAM ranging between $1.5 billion and $10 billion, by the company’s estimate.
Moreover, the analyst thinks that within the peripheral vascular (PV) market, there is an opportunity for rising adoption of PEN’s products as market penetration is low, “growth is robust, and new indications provide upside to numbers.”
Zimmerman has a price target of $272 on the stock, implying an upside potential of 32.9% to early morning trading levels on Wednesday.
The rest of the analysts on the Street are also largely optimistic about the stock with a consensus rating of Strong Buy based on five Buys and one Hold. The average Penumbra price forecast of $279.20 implies approximately 36.5% upside potential to pre-market trading levels on Wednesday.
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