The past six months have seen a huge rotation out of traditional momentum growth stocks to cyclical and value stocks as the bull market ages. Traditionally, value stocks are those trading at levels that are perceived to be below the company’s fundamentals. Common characteristics of value stocks can include high dividend yield and low price-to-book and price-to-earnings ratios. Sometimes, though, stocks that are perceived as growth stocks slip into value metrics, and that can lead to some big gains for investors.
Each week, the analysts at Jefferies cover the firm’s top value stocks to buy. When we screened the list, four companies with value metrics but momentum stock upside jumped out at us. While all four are rated Buy, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.
This mega-cap biotechnology leader offers investors an outstanding entry point. Biogen Inc. (NASDAQ: BIIB) develops, manufactures and markets therapies for multiple sclerosis (MS), oncology and inflammatory diseases. The company markets five products: Avonex, Plegridy, Tysabri, Tecfidera and Vumerity. Combined, they have a considerable share of the worldwide over $20 billion MS market.
Biogen also provides Benepali, an etanercept biosimilar referencing Enbrel; Imraldi, an adalimumab biosimilar referencing Humiria; and Flixabi, an infliximab biosimilar referencing Remicade.
In addition, the company offers Rituxan for treating non-Hodgkin’s lymphoma, chronic lymphocytic leukemia (CLL), rheumatoid arthritis, two forms of ANCA-associated vasculitis and pemphigus vulgaris. Its Rituxan Hycela is for non-Hodgkin’s lymphoma and CLL, its Gazyva treats CLL and follicular lymphoma, and its Ocrevus is for the treatment of relapsing MS and primary progressive MS. It also has other anti-CD20 therapies.
Jefferies is focused on the potential for a blockbuster approval:
We were out with a report analyzing the potential risk/reward skew for Biogen if Aducanumab is approved. We highlighted that the Street is factoring in only 25-30% on approval (PDUFA 6/7), but we’re higher at 50-60% and believe an approval would be transformational. In our bull case, we see the potential for $30 in peak earnings power, and noted that at a 18-20x P/E multiple it would suggest 100% upside to shares. Meanwhile, even if aducanumab is zeroed out of our model, we value the base business, the partnership with SAGE and some of the pipeline at $200-225 through 2025. In addition, we believe there is strategic value for the company’s more durable biologic assets in the event shares trade lower. While investors may want to wait until after the binary PDUFA event, we believe the risk/reward skew is compelling.
Jefferies has a massive $450 price target for the shares, which compares with the much lower Wall Street consensus target of $288.90. Monday’s final print for Biogen stock was reported at $269.46.