5 Jefferies High-Conviction Health Care Stocks May Be Huge Q4 Winners

Health and Healthcare

Published: September 28, 2020 7:19 am

With the third quarter of what has proven to be a remarkable 2020 coming to a close, many of the firms we cover across Wall Street already are looking to the stretch run of the year and at what should be an improving 2021 economy as we emerge from the COVID-19 pandemic restrictions. One thing’s for sure. The rally everybody was looking to arrive in the second half of the year already may have come and gone.

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Despite the recent selling, the S&P 500 has made a stunning reversal off the March 23 lows, recouping all the losses while printing new all-time highs. Jefferies analysts were tasked with providing their 50 top high-conviction ideas for the second half of 2020 and beyond. The research report that covered them all noted this:

We present the US Research team’s current top ideas, spanning all sectors under coverage. With representation from nearly every publishing analyst, we highlight 50 stocks we find particularly attractive. These are our highest conviction ideas, regardless of theme or macro backdrop, and include our Franchise Picks.

We screened the health care picks, as the sector has solid momentum heading into the fourth quarter and 2021, and found five solid ideas for long-term growth investors with a degree of risk tolerance. While these stocks 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.

BioXcel Therapeutics

This off-the-radar stock has big potential upside. BioXcel Therapeutics Inc. (NASDAQ: BTAI) is a clinical-stage biopharmaceutical company has two clinical development programs. BXCL501 is a sublingual thin film formulation designed for acute treatment of agitation resulting from neurological and psychiatric disorders. BXCL701 is an immuno-oncology agent designed for treatment of a rare form of prostate cancer and for treatment of pancreatic cancer.

Jefferies is bullish on its progress:

Lead asset, BXCL501, is a de-risked treatment for acute agitation in schizophrenia and bipolar disorder. We believe approval around year end 2021 or first quarter 2022 is almost certain, which positions the company for ~$850 million per year in peak revenue. We are bullish for follow-on indications, most notable of which is agitation in dementia with the potential to add over ~$1 billion per year in peak sales. We think ‘501 will 1 will succeed in the upcoming Ph2 dementia trial (4Q20 catalyst) and clearly positive data could send shares up 75% or more by year end.

The Jefferies price target for the shares is $82, but that is well below the Wall Street consensus target of $110.89. The shares were last seen trading at $43.14 apiece.

Cigna

This solid value buy in the sector makes sense for investors who are more conservative. Cigna Corp. (NYSE: CI) is a major health services organization that provides insurance and related products and services in the United States and internationally. All products and services are provided exclusively by or through operating subsidiaries of Cigna, including Cigna Health and Life Insurance Company, Life Insurance Company of North America, Cigna Life Insurance Company of Canada and their affiliates.

The health care giant offers an integrated suite of health services, such as medical, dental, behavioral health, pharmacy, vision, supplemental benefits and other related products, including group life, accident and disability insurance. Cigna maintains sales capability in 30 countries and jurisdictions, and it has approximately 86 million customer relationships throughout the world.

Cigna has a partnership relationship with (and an equity stake in) MDLive for telehealth. Increased telehealth adoption should also translate to a shift in prescription fulfillment to nonphysical pharmacy locations, which should benefit the company’s Express Scripts business, which operates the largest mail pharmacy in the United States.

The analysts noted this:

We believe Cigna’s recent underperformance is unwarranted. The stock is the cheapest in the Managed Care group at 8.5x 2021 estimated earnings-per-share, or a 30% discount to peers. We see an opportunity for the stock to re-rate higher from consistent execution in the pharmacy business management business, sale of the Group disability and life insurance business that enhances capital deployment flexibility, and share gains in Medicare Advantage.

Jefferies has a $247 price target, while the consensus figure is $240.12. Friday’s last trade for Cigna stock was reported at $162.45.