With the latest escalation of the U.S.-China trade war on August 23, investors are looking for defensible stocks that still represent compelling investments in a volatile market. According to research from Goldman Sachs, these investments can be found within the healthcare sector.
“Funds have steadily reduced the share of market cap owned among the stocks most exposed to US-China trade conflict, such as semiconductors,” Goldman strategist Ben Snider wrote in a note to clients. He added that even with the risk of health care regulation that attracted attention from investors earlier in the year, healthcare stocks still present a strong opportunity given the economic landscape.
We looked at 4 of the top August 23 gainers in this sector to find the most compelling investments. Let’s dive in.
Endologix, Inc. (ELGX)
Endologix develops innovative and minimally invasive technologies for aortic disorders including abdominal aortic aneurysms (AAA). With shares gaining 4% on August 23, some analysts argue this healthcare stock is just getting started.
The jump comes one day after ELGX canceled its agreement with Piper Jaffray for the at-the-market sale of up to $25 million of its common stock. While this would have given the company additional capital, several recent positive developments suggest ELGX is still on track for long-term growth.
On August 8, the company announced its agreement to give Boston Scientific (BSX) exclusive rights to distribute its Endologix products in China. Not to mention that same day it received Investigational Device Exemption (IDE) approval from the FDA to begin a new pivotal study evaluating the safety and effectiveness of the Nellix Chimney EndoVascular Aneurysm Sealing System (ChEVAS) for endovascular treatment of complex AAA.
Based on all of the above factors, BTIG analyst Sean Lavin reiterated his Buy rating and $12 price target on August 12. The 3.5-star analyst believes share prices could soar 118% over the next twelve months.
All in all, the Street is cautiously optimistic on this healthcare stock. ELGX has a ‘Moderate Buy’ analyst consensus and an $8 average price target, suggesting 51% upside.
T2 Biosystems Inc. (TTOO)
This healthcare stock develops and commercializes medical diagnostic products for the detection of additional species and antibiotic resistance markers of sepsis pathogens as well as tests for Lyme disease. In the last five days, shares are up 49% with shares gaining over 3% on August 23 alone.
Shares got a boost shortly after T2 announced that it had entered into an exclusive agreement that will allow the company to introduce its rapid diagnostic technologies, including the T2Bacteria and T2Candida Panels, and enter into new markets in Australia, Fiji and New Zealand. These countries have approximately 1,150 hospitals that could benefit from T2’s products.
It doesn’t hurt that its T2Bacteria Panel received approval for a New Technology Add-on Payment (NTAP) from the Centers for Medicare & Medicaid Services (CMS) on August 6, making it the first and only in-vitro diagnostic test to ever receive approval for NTAP.
“We view this development as an unexpected victory that sort of came out of left field (as management had not indicated plans to pursue this add- on payment). While management has indicated that pricing (cost) of their panels has historically not been a meaningful barrier to driving adoption, we think that anything sold into a hospital is scrutinized from a cost and ROI perspective, even if it is clear that the technology has clinical utility for the patient,” noted Canaccord Genuity analyst Mark Massaro. As a result, the five-star analyst reiterated his Buy rating and $2.50 price target on August 6. He believes shares could soar 110% over the next twelve months.
Wall Street takes a less bullish stance on TTOO. It has a ‘Hold’ analyst consensus and a $1 average price target, indicating 22% upside potential.
InspireMD Inc. (NSPR)
The vascular procedure technology company saw shares jump almost 2% on August 23 as well as a 32% gain in the last five days, with some analysts saying there’s no sign of a slowdown on the horizon.
The upward move follows the announcement of its planned public offering of units, each consisting of one common share and one Series E warrant.
Investors have expressed concern regarding a letter from the NYSE American it received on August 7, 2019. It indicated that InspireMD does not meet a certain listing standards due to the fact that the company had reported stockholders’ equity of less than $6 million as of June 30, 2019 and had net losses in its five most recent fiscal years.
That being said, analyst Vernon Bernardino argues that the public offering is a move in the right direction. As a result, he reiterated his Buy rating and $5 price target. The H.C. Wainwright analyst believes shares could surge 71% in the next twelve months.
NSPR boasts a ‘Moderate Buy’ analyst consensus and a $5 average price target, implying 71% upside potential.
Zymeworks Inc. (ZYME)
This biotech company develops protein therapeutics for the treatment of cancer as well as for autoimmune and inflammatory diseases. With shares up over 1% on August 23, some analysts believe now is the time to buy.
Investors were impressed when ZYME posted strong Q2 earnings results on August 2. While EPS fell short of the consensus estimate by one cent, it was able to pull off a revenue beat.
These results were boosted by a $7.5 million milestone payment from its partner Celgene (CELG) on July 16. The payment was triggered when CELG announced that it selected a lead oncology candidate and exercised its option for commercialization rights under their 2014 Azymetric agreement.
After the news of the milestone payment broke, Deutsche Bank analyst Kostantinos Aprilakis told investors that the stock price represents a buying opportunity. This played into the analyst’s decision to initiate coverage with a Buy and set a $34 price target. He thinks shares could gain 36% in the next twelve months.
In general, the Street takes a slightly more cautious stance on ZYME. It has a ‘Moderate Buy’ analyst consensus and a $29 average price target, suggesting 14% upside potential.