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 Avid Bioservices, Inc. (NASDAQ:CDMO) 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 chemist looking through a microscope in a research and development facility as they synthesize recombinant proteins.
Avid Bioservices, Inc. (NASDAQ:CDMO)
Number of Hedge Fund Holders: 31
Avid Bioservices, Inc. (NASDAQ:CDMO) is a contract development and manufacturing organization (CDMO) specializing in biologics. The company provides services to pharmaceutical and biotech firms to develop and manufacture biological drugs, helping them bring their products to market.
A significant catalyst for Avid Bioservices, Inc. (NASDAQ:CDMO) is the completion of its three-year expansion program. The company has successfully brought online new mammalian and cell and gene therapy facilities, substantially increasing its production capabilities. This expanded capacity positions Avid to take on larger contracts and serve a broader range of clients in the rapidly growing biopharmaceutical market. The global trend towards outsourcing biopharmaceutical manufacturing is a key driver for Avid Bioservices’ growth. As more biotechnology companies focus on research and development, they are increasingly relying on CDMOs like Avid for production, creating a favorable market environment.
Dan Hart, the Chief Financial Officer at Avid Bioservices, Inc. (NASDAQ:CDMO), said in the Fiscal 2024 earnings call transcript:
“For the 2024 full fiscal year, revenues were $139.9 million, a decrease of approximately 6% compared to $149.3 million in the same prior year period. The decrease in revenues for the fiscal year that ended April 30, 2024, compared to the same prior year period was primarily attributed to fewer manufacturing runs, a reduction in process development services primarily from early-stage programs, and a reduction of revenue for changes in estimated variable consideration under a contract where uncertainties have been resolved. Gross profit for the fourth quarter of fiscal 2024 was $5.5 million or 13% gross margin compared to $8.4 million or 21% gross margin in the fourth quarter of fiscal 2023. Gross profit for the 2024 full fiscal year was $7.3 million or 5% gross margin, compared to a gross profit of $31.5 million or 21% gross margin for the 2023 full fiscal year.”
As of Q2 2024, around 31 hedge fund holders held stakes in the stock with BlueCrest Capital Mgmt. The stock holds a Strong Buy rating based on 3 Wall Street Analysts. The average price target is $11.00, with forecasts ranging from $8.00 to $14.00, representing a 4.36% increase from the current price of $10.54.
Overall CDMO ranks 8th on our list of the best small-cap healthcare stocks to buy now. While we acknowledge the potential of CDMO 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 CDMO 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.
