SunTrust Has 5 Sizzling Health Care High-Conviction Picks for Q4

Print Email

This year, for the first time in many years, active managers are outperforming index funds, and that should be a loud wake-up call to passive investors. After a more than 10-year bull market, the bull is tired. Although central banks are still providing a liquidity security blanket, and interest rates remain at generational lows, this looks to many on Wall Street like the proverbial “stock pickers” market.

So, many portfolio managers and investors are looking for stocks that can outperform into year’s end and generate a little finish-line alpha. The analysts at SunTrust Robinson Humphrey put together a list of 33 stocks ideas that they feel will outperform into year-end 2019.

SunTrust noted this when discussing the high-conviction equity ideas:

Many of our institutional clients are looking for help as they screen for stocks that are poised to outperform into year end, with characteristics or catalysts that will likely become apparent to the market in the fourth quarter. Furthermore, with the recent increased volatility, partly driven by the “great rotation” – out of momentum/growth into value/ laggard names – we are receiving more requests from money managers for value ideas which have lagged, hence the timeliness of this effort.

Today we look at the health care stocks that the analysts focused on, and five in the report make good sense for accounts with a degree of risk tolerance. All are rated Buy at SunTrust.

Axsome Therapeutics

This stock was ripped recently and may be offering a stellar entry point. Axsome Therapeutics Inc. (NASDAQ: AXSM) is a clinical-stage biopharmaceutical company engaged in developing novel therapies for the management of central nervous system disorders. Its product candidates include AXS-02 and AXS-06, which are developing for multiple indications.

To date, approximately 65% of the targeted number of patients have been randomized into the ADVANCE-1 Phase 2/3 trial of AXS-05 in agitation associated with Alzheimer’s disease. Axsome continues to anticipate topline results from the ADVANCE-1 trial in the first half of 2020. Also, to date, more than 80% of the targeted number of patients have been randomized into the MOMENTUM Phase 3 trial of AXS-07 in the acute treatment of migraine.

The SunTrust report said this:

Our thesis is based on the company’s lead asset AXS-05 currently in Phase 3 development for Major Depressive Disorder (MDD), Treatment Resistant Depression (TRD), and Alzheimer’s Disease Agitation (AD Agitation). Despite de-risking data points, we still view Axsome as undervalued based; on $3.5 billion a competitor paid for a similar drug in 2014 for AD Agitation, a large total addressable market opportunity, and AXS-05’s potential in depression. We anticipate mid to late stage clinical readouts over the next 12 to 18 months to continue to create shareholder value.

The SunTrust price target for the shares is a whopping $50. The Wall Street consensus target is $36.83, and shares closed Monday’s trading at $18.23.

Bausch Health

This familiar name is a company that offers some stability and very solid upside potential. Bausch Health Companies Inc. (NYSE: BHC) is a global company focused on health care products ranging from pharmaceuticals (brands + generics), medical devices (contact lenses) and over-the-counter medicines.

The company is focused on developing and commercializing products in three therapeutic areas: eye care, gastroenterology and dermatology. The analysts have some concerns, but overall they like the company and the potential:

Despite the heavy debt load, we believe management is doing the right things to strengthen the business, including investing behind core growth franchises (particularly GI and eye care), reducing legal liabilities, and strengthening the balance sheet. The company has also begun an important pivot to offense, demonstrating the ability and willingness to make bolt-on acquisitions. If the company continues to execute, we see the potential for significant upside for the stock over the next 12+ months, although the debt burden will make it tough for the stock to be owned by the masses.

SunTrust has a $30 price target, while the consensus target is $29.72. The shares were last seen trading at $19.29 apiece.