Jefferies Biotech and Health Care Momentum Stocks to Buy With Big Upside Potential

October 18, 2016 by 247lee

One of the best market conditions for active traders is one in which price momentum underperforms and then kicks back in with a vengeance, and given what we have experienced since July, that could be a scenario we are about to enter. The market has put in a grinding, sideways move and may be getting ready for a jump higher, especially if earnings start to pick up.

A new research report from Jefferies focuses on a bounce back for momentum stocks, and it notes that when price momentum has been as bad as it has been recently, it tends to rebound in a big way. The analysts screened the firm’s research universe, and found 25 stocks rated Buy that, as they put it:

Sit in the top quintile based on our one-month change in 200-day moving average of price momentum, and carry a market cap above $2 billion inside of the Russell 2500 Growth

We found four in the biotech and health care space that look very attractive for traders now.

Abiomed

The Jefferies team thinks this top company has virtually no competition in its space. Abiomed Inc. (NASDAQ: ABMD) engages in the research, development and sale of medical devices to assist or replace the pumping function of the failing heart. It also provides continuum of care to heart failure patients.

The company offers Impella 2.5 catheter, a percutaneous micro heart pump with integrated motor and sensors for use in interventional cardiology; Impella CP that provides partial circulatory support using an extracorporeal bypass control unit; Impella 5.0 catheter and Impella LD, which are percutaneous micro heart pumps with integrated motors and sensors for use primarily in the heart surgery suite; and Impella RP, a percutaneous catheter-based axial flow pump.

The company also manufactures and sells AB5000 circulatory support system for temporary support of acute heart failure patients in profound shock, including patients suffering from cardiogenic shock after a heart attack, postcardiotomy cardiogenic shock or myocarditis. In addition, the company engages in the research, development, prototyping and the pre-serial production of a percutaneous expandable catheter pump, which enhances blood circulation from the heart with an external drive shaft.

In a recent report the analysts noted this:

Competition in the space remains non-existent and having only penetrated 7% of the market for pumps thus far, we believe if the company can sustain a 40% revenue growth rate for the next 5 years, the higher $1.8B goal for calendar year 2021 could be achievable.

The Jefferies price target for the stock is $145, and the Wall Street consensus target price is $128.14. The stock closed Monday at $127.97 per share.

Ariad Pharmaceuticals

This is an integrated global oncology company focused on transforming the lives of cancer patients with breakthrough medicines. Ariad Pharmaceuticals Inc. (NASDAQ: ARIA) is working on new medicines to advance the treatment of various forms of chronic and acute leukemia, lung cancer and other difficult-to-treat cancers. The company utilizes computational and structural approaches to design small-molecule drugs that overcome resistance to existing cancer medicines.

Jefferies has liked the stock for some time, and many analysts feel that it remains a potential buyout candidate. The stock was hit recently as the pricing for one of its drugs has jumped four times in 2016. Iclusig, which is used to treat chronic myeloid leukemia and Philadelphia chromosome positive acute lymphoblastic leukemia, two rare blood and bone marrow diseases, now costs a stunning $199,000 per year.

Jefferies currently has a $15 price target for the stock. The consensus estimated is listed at $12.78. Shares closed most recently at $11.112.

NuVasive

This has been a popular name for years when it comes to potential merger or takeover chatter. NuVasive Inc. (NASDAQ: NUVA) is an innovative global medical device company that is transforming spine surgery with minimally disruptive surgical products and procedurally integrated solutions for the spine.

NuVasive has emerged from a small startup to become the number three player in the $9 billion global spine market and remains focused on market share-taking strategies as the company continues on its path to become the industry’s leading spine company. NuVasive offers a comprehensive spine portfolio of more than 90 unique products developed to improve spine surgery and patient outcomes. Its principal procedural solution is its Maximum Access Surgery, a platform for lateral spine fusion.

The company has been on an earnings surprise roll, and many top analysts on Wall Street think that could continue this quarter. NuVasive has posted a nice streak of beating earnings estimates, especially when looking at the previous two quarters, when it topped estimates by at least 10%. The trend looks like it could continue when the company reports on October 26.

The $75 Jefferies price target compares with the consensus target, which is set at $71.69, and the most recent closing share price of $66.23.

Patheon

This company recently hit our insider buying screens in a big way, and that’s a positive for shareholders. Patheon Holdings N.V. (NYSE: PTHN) provides outsourced pharmaceutical development and manufacturing services. The company offers a range of active pharmaceutical ingredient and finished drug product services, including formulation development, as well as clinical and commercial-scale manufacturing, packaging and life-cycle management. It caters to small molecule and large molecule biological drug sectors.

The company reported outstanding third-quarter 2016 revenue, which was an 8% increase compared to the third quarter of the previous year. The increase was driven by continued growth in the underlying business across the entire network, both in the United States and abroad. And note that revenue in the third quarter of 2015 included $15 million related to a business that was spun off from Patheon in July of 2015. Excluding the 2015 BLS revenue, the growth was 11% on a year-over-year basis.

The Jefferies price target is set at $35, while the consensus target is lower at $32.75. Shares closed trading on Monday at $28.05 apiece.

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These four solid stocks could show some solid price momentum, especially with earnings season upon us. While they are all more suited for accounts with a higher risk tolerance, they are all established companies with sizable track records.