We recently compiled a list of the 10 Best Affordable Stocks To Buy Right Now. In this article, we will look at where Royalty Pharma plc (NASDAQ:RPRX) ranks among the best affordable stocks to buy right now.
The stock market appears to be at a turning point. While major indexes are still hovering near record levels, there’s been increased volatility this earnings season. Stocks tied to artificial intelligence and semiconductors, once investor darlings, have seen significant sell-offs. With the approaching presidential election, and shifting Federal Reserve policies, uncertainty might be the central theme this autumn.
The Job Openings and Labor Turnover Survey, a key report from the Labor Department, revealed that job openings dropped to 7.67 million in July, a decrease of 237,000 from June’s revised figure and the lowest since January 2021. This decline reduced the ratio of job openings per available worker to just under 1.1, a significant drop from its peak of over 2-to-1 in early 2022. The data is expected to support the Federal Reserve’s anticipated move to begin lowering interest rates at their upcoming September 17-18 meeting.
Michael Yoshikami, CEO of Destination Wealth Management, believes the U.S. Federal Reserve could make a significant 50 basis point rate cut without unsettling the markets. His comments align with Nobel Prize-winning economist Joseph Stiglitz, who recently suggested the Fed should consider a half-point cut, arguing that the central bank’s prior tightening moves were excessive. While Yoshikami acknowledged that such a large cut might fuel recession fears, he emphasized that concerns are exaggerated. He also noted that the recent market sell-off, which marked the S&P 500’s worst week since March 2023, followed a period of “massive profits” in the prior month. Despite a turbulent start, August saw gains across major indexes, and September is typically a slower trading period.
Thanos Papasavvas, founder and chief investment officer of ABP Invest, acknowledged growing concerns about a potential economic downturn. ABP recently raised its recession probability for the U.S. to 30%, up from 25% in June, though Papasavvas described the risk as “relatively contained.” He emphasized that key economic indicators, such as manufacturing and unemployment rates, remain “resilient.”
On another front, U.S. factories continued to experience a slowdown in August, raising concerns about the direction of the economy. The Institute for Supply Management’s monthly survey of purchasing managers showed that only 47.2% reported growth for the month, falling below the 50% threshold that signals expansion. Although this was slightly higher than July’s 46.8%, it missed the Dow Jones consensus estimate of 47.9%.
Timothy Fiore, chair of the ISM Manufacturing Business Survey Committee stated:
“While still in contraction territory, U.S. manufacturing activity contracted slower compared to last month. Demand continues to be weak, output declined, and inputs stayed accommodative.”
Despite the index indicating contraction in manufacturing, Fiore noted that a reading above 42.5% typically suggests overall economic expansion. Last month’s weaker-than-expected report triggered a sharp market downturn, leading to an 8.5% drop in the S&P 500 before a partial recovery. Following the latest ISM data release on September 3, stocks continued to fall, with the Dow Jones Industrial Average down nearly 500 points.
Our Methodology
To create our list of the best affordable stocks to buy, we used stock screeners to identify undervalued stocks with forward price-to-earnings (P/E) ratios below 15 as of September 16, all of which are also favored by analysts. This selection is based on the popularity of these stocks among the 912 hedge funds tracked by Insider Monkey. The list is arranged in ascending order, according to the number of hedge funds holding each stock.
At Insider Monkey, we are obsessed with 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).
Royalty Pharma plc (NASDAQ:RPRX)
Forward P/E Ratio as of September 16: 6.31
Number of Hedge Fund Holders: 34
Royalty Pharma plc (NASDAQ:RPRX) specializes in purchasing biopharmaceutical royalties and funding innovations within the U.S. biopharma sector. The company also identifies, evaluates, and acquires royalties on various biopharmaceutical therapies.
Goldman Sachs recently reaffirmed its Buy rating on RPRX with a target price of $51.00. This endorsement comes after Royalty Pharma’s recent agreement with Ascendis Pharma for a novel hypoparathyroidism drug, Yorvipath. Under the deal, Royalty Pharma plc (NASDAQ:RPRX) will pay Ascendis $150 million upfront for a 3% royalty on U.S. net sales of Yorvipath.
Moreover, in Q2, Royalty Pharma plc (NASDAQ:RPRX) reported impressive growth, exceeding its high-single-digit forecast with a 12% increase in portfolio receipts. The company invested $2 billion in new royalty transactions and acquired royalties on six therapies. The FDA’s approval of Voranigo is anticipated to boost growth, with potential peak sales reaching $1 billion. Additionally, Royalty Pharma plc (NASDAQ:RPRX) has raised its full-year 2024 guidance, now expecting portfolio receipts to fall between $2.7 billion and $2.775 billion.
As of Q2, 72 hedge funds held long positions in Royalty Pharma plc (NASDAQ:RPRX), with a total stake value of $1.09 billion. Viking Global was the largest stakeholder, holding $315.65 million worth of shares.
Patient Capital Opportunity Equity Strategy stated the following regarding Royalty Pharma plc (NASDAQ:RPRX) in its Q2 2024 investor letter:
“While Royalty Pharma plc (NASDAQ:RPRX) is in the health care space, it is more like an investment firm that buys royalty assets in the healthcare space. The company has an extremely strong track record, running the business for over 20 years as a private fund before bringing it public. The market opportunity for external royalty funding has only grown as early-stage start-ups need funding and legacy players are looking to lower their debt levels. We think Royalty Pharma is perfectly positioned as the partner of choice. The company is disciplined, maintaining deal internal rate of returns (IRRs) in the low-teens despite the higher interest rate environment. We think as the company continues to deliver as a public company, the market will start paying attention.”
Overall RPRX ranks 1oth on our list of the best affordable stocks to buy. While we recognize the potential of RPRX as an investment, we believe certain deeply undervalued AI stocks offer greater prospects for higher returns in a shorter period. If you’re seeking an AI stock with even more promise than RPRX and trading at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published on Insider Monkey.
