We recently compiled a list of the 15 Best Biotech Stocks to Buy According to Billionaires. In this article, we are going to take a look at where Natera, Inc. (NASDAQ:NTRA) stands against other biotech stocks.
Although biotech stocks had a “challenging” year in 2024, JPMorgan believes that some of the industry’s companies could see significant growth in the months to come. Senior partner and principal of investments at Novo Holdings, Johan Hueffer, spoke on CNBC on November 28 about his macro outlook for life sciences investments. He claimed that in the past few years, biotechs have had trouble raising funding. Over the past quarter or two, though, that tendency has begun to improve.
Nonetheless, there have been effects on businesses that specifically support the pharmaceutical sector, including contract manufacturing organizations (CMOs), research and development tools providers, and contract research organizations (CROs). Similar patterns have been noted for businesses that produce production tools for the biotech and pharmaceutical sectors. Although there have been ups and downs in these sectors over the last two years, the patterns are now beginning to stabilize. According to Hueffer, there is a lot of potential in the sector right now.
Goldman Sachs Highlights Undervalued Biotech Sector Amid Fed Rate Cuts
Likewise, Goldman Sachs clarified biotech as a frequently disregarded area of the investment world. John Flood, Head of Americas Equities Sales Trading at Goldman, wrote in a letter to clients that biotech equities offered an unnoticed opportunity for investors hoping to profit from the Fed’s recent rate decreases. Because biotech equities are sensitive to interest rate changes and frequently depend on anticipated future revenues, they are particularly impacted. The cost of capital has a significant effect on these equities as well. These equities have substantial upside potential and, should clinical studies be successful, offer an “option-like structure,” even though they are now quite unprofitable. Because of this, they are particularly sensitive to shifts in interest rates.
The Fed has lowered the funds rate by one full point since September. The present market pricing indicates that there will only be one or two additional declines in 2025, according to CNBC. The Federal Open Market Committee (FOMC) members voted to lower the central bank’s benchmark borrowing rate to the 4.25%–4.5% target range, according to a January 8 CNBC report. But they also trimmed their projections for anticipated rate cuts in 2025, assuming quarter-point increases, from four to two.
Flood’s report also emphasized how the biotech sector has recently demonstrated better fundamentals, which have been ascribed to superior clinical outcomes and a more favorable regulatory environment. Goldman’s data shows that hedge funds continue to underinvest in biotechnology despite these tailwinds. Over the previous year, the industry’s hedge fund’s long/short positioning placed it in the 13th percentile. In addition, for the previous five years, it was in the fourth percentile.
Our Methodology
For our methodology, we selected biotech stocks from the Insider Monkey billionaire database, as of Q4 2024, focusing on those with the highest number of billionaire holdings. We then ranked these stocks based on the number of billionaire investors. In cases where multiple stocks had the same number of billionaire holders, we used the dollar value of billionaire holdings as a tiebreaker, placing stocks with lower dollar values first in ascending order.
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 laboratory environment with technicians in lab coats conducting molecular testing services.
Natera, Inc. (NASDAQ:NTRA)
Number of Billionaires: 14
Dollar Value of Billionaire Holdings: $2,302,821,195
Natera, Inc. (NASDAQ:NTRA) is a clinical genetic testing company specializing in non-invasive cell-free DNA (cfDNA) technology. It offers genetic tests in women’s health, oncology, and organ health, with its flagship product, Panorama, a prenatal test that screens for genetic disorders as early as nine weeks of pregnancy. The company stands out for its innovative use of cfDNA technology, combining molecular biology, bioinformatics, and AI to detect genetic abnormalities with high sensitivity and accuracy, giving it a competitive edge in the biotech sector.
Natera, Inc. (NASDAQ:NTRA)’s Q4 2024 financial results show strong growth and improving financial health. Total revenue reached $476.1 million, up 53% from Q4 2023, which was driven by a 53.9% increase in product revenues. The company also saw a significant jump in test volume, processing 792,800 tests, a 26.5% increase from the previous year, with oncology tests rising by 54.7%. Gross margin improved to 62.9% from 51.4% in Q4 2023, reflecting higher efficiency.
For the full year, Natera, Inc. (NASDAQ:NTRA)’s revenues totaled $1.7 billion, a 56.7% increase, with a gross margin of 60.3%. This growth was fueled by higher test volumes and better pricing strategies. Although operating expenses rose due to an increase in headcount and legal costs, they grew at a slower rate than revenue, showing better operational efficiency. Despite reporting a net loss of $53.8 million for Q4 2024 and $190.4 million for the full year, the company’s reduced losses compared to last year signal progress toward profitability.
Overall, NTRA ranks 3rd among the best biotech stocks to buy according to billionaires. While we acknowledge the potential of NTRA, 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 NTRA 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 on Insider Monkey.