The firms that we cover on Wall Street increasingly are starting to agree that the volatility the stock market is encountering now, and the beating the economy has taken this year, should continue to fade in the fourth quarter of 2020 and especially into 2021. However, the future may be one of stock market gains that are much lower than the norm has been over the past 10 years. When that is the case, then investing strategies often shift from indexing to a more disciplined stock-picking routine. That’s when investors need solid growth ideas.
Jefferies highlights the firm’s top growth stocks to buy each week, and this week is no exception. While these stocks are better suited for investors that have a higher risk tolerance, they all make good sense now and have outstanding upside potential. We found four health care stocks that look extremely attractive now, and they are among the top Jefferies U.S. growth calls for this week.
While all four are rated Buy at Jefferies, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
Charles River Laboratories
This is one of the premier contract research companies in the sector and a more conservative idea for growth investors. Charles River Laboratories International Inc. (NYSE: CRL) is the leading early-stage drug development contract research organization. It provides animal research models and preclinical drug development services to biopharmaceutical companies, government agencies and academic institutions.
The company also offers microbial and biologics testing solutions for the production and release of products manufactured by clients. Second-quarter revenue grew 4% year over year (and was 7% ahead of the street) on strength in discovery and assessment and manufacturing. Preclinical drug development fundamentals remain positive, and COVID-19 could serve as a catalyst for more outsourcing.
Jefferies noted this in the research report:
Our view is predicated on four key factors:
1) our proprietary model showing preclinical growing fastest over the next 5 years.
2) The company is one of the best-positioned to benefit from biotechs’ funding windfall.
3) MS can benefit from the enduring nature of COVID manufacturing.
4) Charles River valuation remains near the group mean despite a better fundamental outlook. Our 2021 EPS estimate is ~7% ahead of consensus.
The analysts raised the price target on Charles Rivers Laboratories stock from $213 a share to $254. The Wall Street consensus target is $238, and the shares closed at $220.01 apiece on Monday.
This stock is trading a very reasonable 9.46 times estimated 2020 earnings. Gilead Sciences Inc. (NASDAQ: GILD) is a biopharmaceutical company that discovers, develops and commercializes therapies for the treatment of HIV/AIDS, liver disease, cancer and inflammation. The acquisition of Kite Pharmaceutical in 2017 allowed for entry into the CAR-T space, indicating a renewed focus in oncology.
The company’s products include Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults; and Harvoni, Sovaldi, Viread and Hepsera products for the treatment of liver disease.
Gilead jumped into the mergers and acquisitions ring with a massive purchase this weekend, and the analysts said this:
On Sunday the company announced the acquisition of Immunomedics, Inc. (NASDAQ: IMMU) for $21 billion. We are positively biased on the acquisition as this moves Gilead quickly into a commercial footprint for solid tumors. The primary investor pushback we have heard is that the company is paying too much for the asset. In our conversations, the company suggested their bullishness is based on: assumptions for triple negative breast cancer and moving upstream into 1L, high confidence in bladder cancer, future potential on HR+ breast cancer and an earlier phase 2 basket study in lung cancer. While Gilead still has several deals to digest, we highlight these add a lot more drivers, clear momentum in oncology and less reliance on HIV.
Investors receive a 4.10% dividend. Jefferies has a $78 price target, which is in line with the Wall Street consensus target of $78.38. Gilead Sciences stock ended Monday’s trading at $66.34 per share.