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 Arvinas, Inc. (NASDAQ:ARVN) 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 biopharma executive in a meeting room discussing the clinical-stage of a new therapy.
Arvinas, Inc. (NASDAQ:ARVN)
Number of Hedge Fund Holders: 33
Arvinas, Inc. (NASDAQ:ARVN) is a clinical-stage biopharmaceutical company that specializes in developing innovative protein degradation therapeutics for the treatment of various diseases, including cancer and neurodegenerative disorders. At its core, Arvinas focuses on creating PROTAC (proteolysis targeting chimera) protein degraders, which are designed to harness the body’s natural protein disposal system to selectively eliminate disease-causing proteins.
A major catalyst for Arvinas, Inc. (NASDAQ:ARVN) is its robust clinical pipeline, particularly its lead candidate vepdegestrant (ARV-471). This PROTAC protein degrader is being developed for the treatment of patients with locally advanced or metastatic ER+/HER2- breast cancer. Vepdegestrant has shown promising results in clinical trials. In a Phase 1b trial in combination with palbociclib, it demonstrated a clinical benefit rate of 63% and an overall response rate of 41.9% in heavily pretreated patients. These results have led to the initiation of multiple Phase 3 trials, including VERITAC-2 and VERITAC-3, which could potentially lead to regulatory approval if successful.
As of Q2 2024, around 33 hedge fund holders held a stake in the stock with EcoR1 Capital being the largest stakeholder with 6,726,491 shares worth $179,059,190. The stock sports a Strong Buy rating based on 10 Wall Street Analysts. The average price target is $61.63, with forecasts between $48.00 and $87.00, indicating a 135.59% increase from the current price of $26.16.
Overall ARVN ranks 3rd on our list of the best small-cap healthcare stocks to buy now. While we acknowledge the potential of ARVN 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 ARVN 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.
