We recently published a list of the 7 Most Undervalued Biotech Stocks To Invest In. In this article, we are going to take a look at where Elanco Animal Health Incorporated (NYSE:ELAN) stands against the other most undervalued biotech stocks to invest in.
Trump’s Tariffs and the Pharma Sector
On February 21, Jared Holz, Mizuho Securities America’s healthcare sector strategist, appeared on CNBC to discuss Trump’s tariffs and their effects on the American pharma sector. Although he was unsure of the intention behind these tariffs, he opined that the pharma industry was not all that special when compared to verticals such as industrials and technology, such that President Trump would intend to enlarge its presence in the US.
The tariffs thus encompass the grander plan surrounding how the pharmaceutical industry fits into scaling up domestic manufacturing. A majority of pharma and biotech companies have a significant presence in the US. However, some questions still stand, such as whether they will hire more people in the US compared to Europe or Asia and whether they will bring back more business to America.
Holz was unclear about the answers to these questions, but he believed that anything coming out of Europe or China would obviously be fair game. Further discussing the scenario, he said that boosting manufacturing facilities and capacities from scratch is not an easy endeavor, as it takes considerable years to reach a point where companies can domestically produce at a high rate. Therefore, the impact of tariffs on the production capacity and on-shoring of pharma companies remains fuzzy.
READ ALSO: 10 Best Performing Pharma Stocks So Far in 2025 and 11 Best Pharma Stocks to Buy According to Hedge Funds.
How Will the Pharma Industry Perform in 2025?
We further discussed the potential impacts of Trump’s tariffs and the performance of the pharma industry in a recently published article on the 10 Oversold Pharma Stocks to Buy According to Analysts. This excerpt from the article offers another analyst’s point of view:
“On February 20, Emily Field, Head of European Pharma Research at Barclays, appeared on CNBC to discuss the dynamics of the pharmaceutical sector, the impact of US tariffs, and the performance of obesity drugs. She believed the industry may not underperform this year, at least in the first half. However, there are still several questions surrounding the performance of obesity drugs, as major players in the domain have exhibited contrasting previous year performance.
Talking about the tariffs, she said that their materialization poses a big open question for the pharmaceutical sector as some companies assemble their products in the US after manufacturing them abroad. Manufacturing costs are thus pretty low for these companies, which is a significant point to consider when determining the impact of tariffs. She believed that absorbing the additional cost of the tariffs would be very manageable for these companies. The market has reached the tail-end of the earnings season, and the situation hasn’t come up much on earnings calls over this quarter.”
Our Methodology
We sifted through stock screeners, online rankings, and ETFs to compile a list of 15 biotech and biopharma stocks with a forward P/E of less than 15. We then selected the top 7 with the highest number of hedge fund holders as of Q4 2024. We sourced the hedge fund sentiment data from Insider Monkey’s database. The list is sorted in ascending order of hedge fund sentiment.
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 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A farmer tending to a herd of cattle with Innovative Parasiticide and Vaccine Products.
Elanco Animal Health Incorporated (NYSE:ELAN)
Forward P/E: 11.79
Number of Hedge Fund Holders: 37
Elanco Animal Health Incorporated (NYSE:ELAN) is a biotech company that delivers services and products that prevent and treat disease in pets and farm animals. Its diverse portfolio serves animals across various species, primarily cats, dogs, cattle, swine, poultry, and sheep. The company’s product offerings are divided into Farm Animal and Pet Health. The Pet Health portfolio specializes in parasiticides, therapeutics, and vaccines. It also offers products that grant protection from ticks, fleas, and internal parasites. The Farm Animal portfolio focuses on swine, cattle, and poultry and includes an elaborate list of products. These include Denagard, Baycox, Experior, Rumensin, Monteban, Baycox, Maxiban, Comforta, Catosal, and others.
It delivered a strong end to fiscal year 2024, marking its sixth consecutive quarter of organic constant currency revenue growth with fiscal Q4 2024 up 4%. In fiscal year 2024, Elanco Animal Health Incorporated (NYSE:ELAN) grew both its Pet Health and Farm Animal segments, in its top five product franchises, and in nine of its top 10 countries, all on an organic constant currency basis. These trends reflect the broad-based strength of the company’s diverse portfolio.
Elanco Animal Health Incorporated (NYSE:ELAN) is strategically focused on streamlining its operations while progressing in its innovative product pipelines, demonstrating significant growth opportunities. The launch of Credelio Quattro, which is expected in Q1 2025, is expected to support the company’s position in the parasiticide segment. Furthermore, the strong performance of Experior, primarily in the heifer market, is anticipated to significantly contribute to its growth in 2025.
The potential success of such products, together with the ongoing expansion of Zenrelia—a JAK inhibitor for treating pruritus and atopic dermatitis in dogs launched in late September 2024—is expected to fuel revenue growth and further strengthen Elanco Animal Health Incorporated (NYSE:ELAN)’s market position over the next few years.
Overall, ELAN ranks 7th on our list of the most undervalued biotech stocks to invest in. While we acknowledge the potential of ELAN 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 time frame. If you are looking for an AI stock that is more promising than ELAN 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.