If there was a sector that joined energy in taking a beating in 2015, it was specialty pharmaceuticals. In fact, it never fails, the guilt by association when something goes awry in a high-profile stock almost always bleeds to others, even if they have not a thing in common with the offender. The specialty pharmaceutical sector is down a stunning 30% since the end of July. With drug pricing and sales channels an issue, and politicians howling for action, the perfect negative storm hit the sector.
In a new research report, RBC thinks that none of the above should seriously impact outlooks for the top companies in 2016, and fundamentals remain very positive. The firm also thinks that companies have the chance to initiate new and larger stock buyback programs, especially at such low levels price wise. RBC notes that while the favorable set-up for the best companies is very positive, investors need to remain selective.
The analysts have six top stocks to buy for 2016, but we focus on the four companies with the biggest potential upside.
Endo Health Solutions
This is the top pick at RBC, and it could hold incredible potential for patient investors. Endo International PLC (NASDAQ: ENDP) is a specialty health care company focused on branded and generic pharmaceuticals and devices worldwide.
The company took a huge hit in the fall due to the Valeant issues and may be offering patient investors an incredible entry point. The company answered the big drop in October by pointing out that the percentage of the company’s projected U.S. Branded 2015 revenues at the midpoint of 2015 guidance that flow through specialty pharmacies is less than 10%, which represents approximately 3% of the company’s projected overall 2015 revenues. It also pointed out that the specialty pharmacies used by Endo are fully independent of the company. Endo does not have any ownership interest in, consolidate any financial results of or have affiliations with any specialty pharmacy.
RBC continues to like the company’s generic business and cites the continuing improving trend of FDA approvals. The firm also notes their 47 potential first-to-file or first-to-market opportunities, with several expected to hit in the next one to two years.
The RBC price target for the stock is a huge $91. The Thomson/First Call consensus target is $83.35. The stock closed Monday at $61.82 a share.
This generic giant could be giving investors the best entry point in years. Teva Pharmaceuticals Industries Ltd. (NYSE: TEVA) is a leading global pharmaceutical company that delivers high-quality, patient-centric health care solutions. It is the world’s largest generic medicines producer, leveraging its portfolio of more than 1,000 molecules to produce a wide range of generic products in nearly every therapeutic area.
In specialty medicines, Teva has a world-leading position in innovative treatments for disorders of the central nervous system, including pain, as well as a strong portfolio of respiratory products. The company integrates its generics and specialty capabilities in its global research and development division to create new ways of addressing unmet patient needs by combining drug development capabilities with devices, services and technologies.
The company acquired Allergan’s generic-drug business for $40.5 billion in cash and stock to bolster its position as the world’s largest maker of generic drugs. RBC thinks that the deal will close early next year and sees an improving product mix combined with accelerating growth as a positive for investors. With the largest generic pipeline in the United States, and the possibility that 2016 emerges as the inflection year for generic approvals, the stock makes good sense for more conservative investors.
RBC has an $85 price target, while the consensus target is posted at $77.59. The stock closed Monday at $65.93.