After an epic rally to all-time highs, the stock market has been seesawing between the red and the green. The volatility that has ensued wasn’t driven by overtly negative news; progress on a COVID-19 vaccine is being made and economic data has been better-than-expected.
BTIG’s Julian Emanuel argues that fewer “upside surprises” could be causing investor focus to shift to “arguably extended valuations and uncertainties surrounding ongoing stimulus negotiations, the 2020 Election, and simmering U.S./China tensions.”
To this end, Emanuel suggests investors take advantage of any weakness and snap up healthcare stocks.
“On Health Care, the sector is at an extremely attractive relative valuation, is a consistent outperformer in geopolitical turbulence and with the Pandemic, is now a strategically important industry for the U.S. government,” Emanuel noted.
Taking Emanuel’s outlook and turning it into concrete recommendations, the pros at BTIG are giving three penny stocks from the healthcare sector a thumbs up. The firm’s analysts project massive upside potential for all three of these tickers that trade for less than $5 per share.
Opening up the TipRanks’ database, we’ve pulled the details on these names, to find out what makes them compelling despite their risky nature.
Venus Concept (VERO)
First up we have Venus Concept, which develops systems and services for minimally invasive and non-invasive medical aesthetics and hair restoration. With a price tag of $2.11 per share, BTIG believes that now is the time to pull the trigger.
Firm analyst Marie Thibault points out that in Q2, customer reopening trends improved and sales of the company’s hair restoration systems ,ARTAS and ARTAS iX, were strong.
“We had not expected ARTAS to start contributing to sales growth during the pandemic. We applaud the team’s execution of the ARTAS commercial strategy, which focuses on a lower system price, increasing utilization on systems already in the field, and the ability to offer (with NeoGraft) a full range of hair restoration treatments,” Thibault noted.
Looking more closely at the recovery trajectory, it “has been relatively steep.” In April, only 5% of U.S. customers were open, with this figure growing to 65% in July. The international business also saw a sequential recovery throughout the quarter, but June sales were still 20% below the year-ago level. Thibault added, “We note that VERO called out a ~$3 million bad debt provision in Q2; we think this is a reasonable, manageable level given the sudden, severe nature of the pandemic.”
Additionally, Thibault highlights the commercial team’s focus on addressing the concerns of customers who had been underutilizing their systems. “We like the company’s focus on resolving the lagging utilization that it inherited from the merger and believe this could create revenue tailwinds in the quarters to come… We like VERO’s execution on the hair restoration opportunity despite the tough environment,” the analyst explained.
If that wasn’t enough, Venus Bliss, another higher-ASP system, had a solid rollout during Q2. Thibault is “impressed with VERO’s ability to sell its higher-ASP systems during this time,” and believes “that with ~65% of U.S. customers open for business again at the end of July, this sets the stage for a strong sequential recovery throughout the back half of 2020.”
Summing it all up, Thibault stated, “In light of these positives, we believe VERO is undervalued.”
To this end, Thibault rates VERO a Buy along with a $7 price target. This target conveys the analyst’s confidence in VERO’s ability to climb 231% higher from current levels. (To watch Thibault’s track record, click here)
So, that’s BTIG’s view, how does the rest of the Street see the next 12 months panning out for VERO? Based on 2 Buy ratings and 1 Hold, the analyst consensus rates the stock a Moderate Buy. The $7.50 average price target indicates shares could skyrocket 262% in the next year. (See VERO stock analysis ratings on TipRanks)
Minerva Neurosciences (NERV)
Developing new treatments for debilitating conditions in behavioral health, Minerva Neurosciences wants to improve the lives of patients from all over the world. Currently going for $3 apiece, its share price combined with its strong pipeline convinced BTIG to give it a thumbs up.
Representing the firm, 5-star analyst Thomas Shrader points to one of its lead assets, MIN-101 (roluperidone), its therapy for negative symptoms associated with schizophrenia, as a key component of his bullish thesis. He reminds investors that additional analyses of the Phase 3 trial data remain ongoing.
Weighing in on the trial, Shrader stated, “Our overall read (based on historical trials) on the Phase 3 MIN-101 trial is that: the larger the trial in this area of medicine, the harder it is to control placebo effects and the more optimistic patients are concerning the likelihood of success, the larger the placebo effect. Our recent update with management suggests both these factors were at play in the recent Phase 3 trial.”
Shrader cites the fact that there appeared to be an increase in placebo effect as more sites were added to the trial. He also mentioned, “Also driving this effect was the inclusion of U.S. sites that had not participated in the Phase 2b trial. As an example of this less trained site phenomenon, removing a single ‘bad-actor’ site (our term, not management’s) would have resulted in a positive topline readout at 64mg. Along similar lines, when the Phase 3 and prior Phase 2b datasets are pooled, roluperidone’s activity across both NSFS and PSP seems apparent.”
So, where does NERV go from here? The next step will be to come to an agreement on the path forward with the FDA. These discussions are slated for 2H20. “If an additional Phase 3 is ultimately necessary, it will likely be smaller in size (and less sites) and only involve a single dose (64mg)… The key takeaway is that management will approach the FDA with the idea of filing, hat in hand, with the current Phase 2b/Phase 3 trial data,” Shrader said.
Based on all of the above, Shrader rates NERV a Buy rating along with a $6 price target. Should his thesis play out, a potential twelve-month gain of 100% could be in the cards. (To watch Shrader’s track record, click here)
What does the rest of the Street have to say? 2 Buy ratings and 1 Hold have been issued in the last three months. As a result, NERV receives a Moderate Buy consensus rating. In addition, the $9.50 average price target is more aggressive than Shrader’s and suggests 210% upside potential. (See NERV stock analysis on TipRanks)
Senseonics Holdings (SENS)
Using a cutting-edge approach, Senseonics develops innovative medical devices. Currently going for $0.41 apiece, BTIG argues that shares appear undervalued.
BTIG’s Marie Thibault is excited about Senseonics’ “resolution to its exploration of strategic alternatives with a commercial collaboration with Ascensia Diabetes Care, a financing agreement with Ascensia parent PHC Holdings and an additional convertible preferred equity agreement.” The agreements total $80 million, extending the company’s cash runway through 2021, in the analyst’s opinion. This deal will see Ascensia, a Switzerland-based company that sells its blood glucose monitoring devices to more than 10 million patients in over 125 countries, become SENS’ commercial partner.
Thibault added, “As exclusive global distributor for five years (2021-2025), Ascensia will focus on selling and marketing Eversense while SENS will be able to reduce its operating spend and focus on R&D, the product pipeline, regulatory work, manufacturing, and branding. … Ascensia will resume selling and marketing in the U.S. in Q4 of this year and will begin selling the 180-day Eversense XL following FDA approval, which is anticipated in Q1 2021. In Europe, Ascensia will replace SENS’ existing distributors as those distributor agreements expire in various countries throughout 2021.”
But what does this mean for SENS? Thibault opined, “While hurdles remain, including the transition from one distributor to another, the success of commercial execution, regulatory approvals, and future financing needs, we believe this agreement should put SENS on a stronger commercial footing at a lower expense level. If all goes well, this could accelerate the company’s path to profitability and allow the Eversense technology to reach more patients.”
Adding to the good news, Eversense, the company’s ICGM system that consists of three parts: an implantable small sensor, a transmitting app that is worn outside the body above the implant and a receiver (mobile phone), was highlighted by CMS in its 2021 Physician Fee Schedule proposal. This includes three national CPT codes covering removal, insertion and combined removal-insertion for Eversense as a medical benefit. SENS already had Medicare coverage, but this was on a regional level and required negotiations with the various Medicare Administrative Contractors.
“With ~80% insurance coverage in the U.S. and the national payment codes set to go into effect January 2021, we believe SENS is far ahead of where it was two years ago at the time of the initial U.S. Eversense launch,” Thibault commented.
It should come as no surprise, then, that Thibault stayed with the bulls. To this end, the analyst kept a Buy rating and $1 price target on the stock, implying 142% upside potential.
Turning now to the rest of the Street, opinions are split 50/50. 2 Buys and 2 Holds add up to a Moderate Buy consensus rating. At $0.80, the average price target suggests 92% upside potential. (See SENS stock analysis on TipRanks)
To find good ideas for penny stocks trading at attractive valuations, visit TipRanks’ Best Stocks to Buy, a newly launched tool that unites all of TipRanks’ equity insights.
Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.