We recently compiled a list of the 10 Best Small-Cap Healthcare Stocks To Buy Now. In this article, we are going to take a look at where Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT) stands against the other small-cap healthcare stocks.
Healthcare Sector: A Defensive Investment with Growth Potential in 2024
In difficult economic times, healthcare equities are sometimes regarded as a defensive investment. This is because, even in recessions, people usually do not reduce their usage of prescription drugs or other necessary medical services. The Centers for Medicare and Medicaid Services (CMS) estimate that healthcare spending in the United States will grow at an average annual growth rate of 5.6% from 2027 to 2032.
Healthcare stocks are defensive, which means that investing in them can yield regular and stable returns for investors People will always require healthcare and medical services, regardless of the state of the economy or the performance of the stock market.
In the US, the healthcare industry is expanding rapidly. A recent estimate shows that the country’s healthcare spending grew by 7.5% in 2023, outpacing the nominal GDP growth rate for the same year. The record high of 93.1% of Americans having health insurance was largely to blame for the significant increase in healthcare spending last year. The global healthcare industry is projected to grow from $583 billion in 2022 to over $800 billion by 2027, with a 7% CAGR, according to McKinsey. Despite 2023 challenges like labor shortages and inflation, 2024 is expected to bring recovery and create attractive investment opportunities.
According to a December 2023 WHO report, global healthcare spending hit a record $9.8 trillion in 2021, or 10.3% of global GDP. However, spending distribution was uneven, with public health spending increasing globally except in low-income countries, where government health spending declined due to reliance on external aid. High-income countries spent about $4,000 per capita, while 11% of the global population lived in countries spending less than $50 per person annually on health. Despite the increase in public health spending during the COVID-19 pandemic, this growth is unlikely to continue due to economic challenges like slowing growth, high inflation, and increased debt.
As 2024 progresses, optimism in the healthcare sector is rising. Despite underperformance in 2023, financial analysts are expecting stronger results this year. BlackRock’s 2024 outlook highlights a “favorable risk-reward environment” for healthcare, noting that last year’s underperformance has created an attractive entry point for investors.
Our Methodology
For our methodology, we focused on selecting healthcare stocks with market capitalizations ranging between $300 million and $2 billion, characterized by high institutional ownership and positive analyst sentiment. After identifying the stocks that met these criteria, we ranked them according to the number of hedge fund holders as of Q2 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A biotechnologist working in a laboratory, examining the effects of a Janus Kinase type 1 inhibitor on plaque psoriasis.
Arcutis Biotherapeutics, Inc. (NASDAQ:ARQT)
Number of Hedge Fund Holders: 32
Arcutis Biotherapeutics Inc (NASDAQ:ARQT) is a biopharmaceutical company focused on developing and commercializing treatments for dermatological diseases. At its core, Arcutis creates topical treatments for various skin conditions, including plaque psoriasis, atopic dermatitis, hand eczema, vitiligo, scalp psoriasis, alopecia areata, and seborrheic dermatitis.
A significant catalyst for Arcutis Biotherapeutics Inc (NASDAQ:ARQT) is its lead product candidate, ZORYVE (roflumilast cream), which has successfully completed pivotal Phase 3 clinical trials for plaque psoriasis. This product demonstrated symptomatic improvement and favorable tolerability, positioning it well for market success. The approval and commercialization of ZORYVE could significantly boost Arcutis’s revenue and market share, driving future earnings growth.
The President and CEO at Arcutis Biotherapeutics Inc (NASDAQ:ARQT) said in the Q2 earnings call transcript:
“Once again, we saw strong growth during the quarter in our expanding ZORYVE portfolio as healthcare providers and patients see how ZORYVE cream and ZORYVE foam address real needs in the treatment of psoriasis and seborrheic dermatitis, respectively. Solid growth in prescriptions for both the cream and the foam, coupled with additional gross-to-net improvements during the quarter, drove strong revenue growth in the second quarter both year-over-year and compared to Q1 2024, with net revenues of $30.9 million, 56% of which was cream and 44% was the foam. We’ve now generated more than 351,000 prescriptions for the cream and the foam combined from over 14,000 unique prescribers to date as our product delivers a positive clinical experience for healthcare professionals and their patients”.
As of Q2 2024, around 32 hedge fund holders held stakes in the stock with Suvretta Capital Management being the largest stakeholder with 10,004,492 shares worth $93,041,776. The stock has a Strong Buy rating based on 6 Wall Street Analysts. The average price target is $16.80, with forecasts ranging from $12.00 to $20.00, indicating a 54.41% increase from the current price of $10.88.
Overall ARQT ranks 5th on our list of the best small-cap healthcare stocks to buy now. While we acknowledge the potential of ARQT as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ARQT but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.