We recently compiled a list of the Top 10 ADR Stocks To Buy According to Hedge Funds. In this article, we are going to take a look at where Jazz Pharmaceuticals plc (NASDAQ:JAZZ) stands against the other ADR stocks.
Diversifying an investment portfolio is one of the best ways of spreading risk and minimizing the impact of heightened volatility. While the focus is usually on investing in stocks in various sectors, it’s also prudent to spread risk across multiple countries. American Depositary Receipts (ADRs) offer one of the best ways of spreading risks into companies in various markets instead of focusing on U.S. companies
ADRs are simply securities issued by banks that represent shares of non-U.S. companies. The stocks are often listed in national exchanges and offer a way of investing in foreign companies.
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Global corporations financing, building, and powering the traditional global economy are increasingly surpassing American businesses that once held the top spot in market success. Likewise, companies operating in the more established value sectors, such as Europe, China, and Japan, offer high risk reward opportunities at discounted valuations.
The top 10 ADR stocks to buy, according to hedge funds, are way cheaper, with their valuations sitting near 10-year low multiples. The cheap valuations and prospect of significant upside potential make them attractive compared to mainstream U.S. companies.
As investors endure uncertainty about U.S. interest rates that remain at highs of between 5.25% and 5.50%, many are increasingly paying attention to international equities trading at discounted valuations.
The prospect of lower interest rates before year-end is one catalyst that should continue strengthening sentiments in the equity markets. ADR stocks listed in the U.S. market should be one of the biggest beneficiaries as investors look to diversify their portfolios.
While investors have pulled more than $12 billion in mainland Chinese equities since June, the Financial Times reports that professional investors stay put in foreign stocks, as they offer significant upside potential.
The UK also continues to offer exposure to some of the best stocks right now in the aftermath of the Bank of England cutting interest rates in early August. With one more cut expected before year-end, analysts believe the lower interest rate environment would be positive for the stock market, which should benefit some of the top ADR stocks listed in the US.
Over the past few years, UK companies have been moving into the US to seek broader investor exposure. As late as two decades ago, UK-listed companies accounted for 11% of the MSCI World Index. Now, the figure has dropped to 4% as most companies seek listing in the US owing to the country’s less stringent standards.
While the S&P 500 is up by about 17% for the year in anticipation of the FED cutting rates, the S&P Global 1200 ADR Index is only up by 11% year to date. The underperformance is not a point of concern but affirms that there is plenty of room for growth for most of the ADR stocks.
Amid the high interest rate environment, signs of the US economy plunging into recession are becoming ripe daily. According to CNBC, the country’s unemployment rate rose to 4.3%, its highest level since 2021.
Similarly, U.S. manufacturing fell to an eight-month low, signaling economic weakness amid the high interest rates. Analysts at BCA Research believe the upcoming interest rate cuts could be insignificant in averting the economy plunging into recession.
“Every single one of us now believes there’s a recession, and that’s exactly the opposite of what the market believes. There’s things that are breaking down quite rapidly now. A few rate cuts are not going to prevent a recession. Average recession is 10 months… It takes something like a year before fed cuts start to give a boost to the economy,” Garry Evans, BCA Research’s chief strategist of global asset allocation, told CNBC’s “Squawk Box Asia.”
Amid the recession concerns, U.S. stocks could come under pressure. On the other hand, the Top 10 ADR stocks to buy according to hedge funds could act as safe havens as most are in jurisdictions with low interest rates.
Our Methodology
To compile the list of Top 10 ADR stocks to buy according to hedge funds, we analyzed the major US indices and settled on stocks of foreign companies with more than 50% upside potential. Once we had consolidated the list, we ranked the stocks in ascending order based on the number of hedge funds that owned it.
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).
A biopharmaceutical scientist in their lab, studying a newly-diagnosed therapy-related acute myeloid leukemia. .
Jazz Pharmaceuticals plc (NASDAQ:JAZZ)
Number of Hedge Fund Holders: 44
Stock Upside Potential: 55.63%
Headquartered in Dublin, Ireland, Jazz Pharmaceuticals plc (NASDAQ:JAZZ) is one of the top 10 ADR stocks to buy according to hedge funds for exposure in the healthcare sector. The company identifies, develops, and commercializes pharmaceutical products for unmet medical needs.
In 2021, Jazz Pharmaceuticals plc (NASDAQ:JAZZ) expanded its footprint into cannabis-based drugs with the acquisition of G.W. Pharmaceuticals for $7.2 billion. Its lead product is Epidiolex, used to treat seizures associated with Lennox-Gastaut and Dravet syndromes. This drug utilizes cannabidiol or CBD.
Jazz Pharmaceuticals plc (NASDAQ:JAZZ) has been in a robust growth phase, with its revenues increasing steadily from $2.36 billion in 2020 to $3.83 billion by 2023. It has also transitioned from a financial deficit to a profit-making status in the previous year.
Jazz Pharmaceuticals plc (NASDAQ:JAZZ) hit a significant milestone in the second quarter, with revenues rising above the $1 billion mark to $1.02 billion. The milestone was driven by strong execution and increased demand for key growth drivers, Xywav, Epidiolex, and Rylaze. It also bounced back to profitability with a net income of $168.6 million or $2.49 a share.
With the company’s oncology revenues growing by 10% yearly, it is arguably one of the ADR stocks to watch in the healthcare sector. The stock trades at a discount with a price-to-earnings multiple of 5 compared to an average P/E of 34 for the healthcare sector.
Based on 16 Wall Street analysts, the average price target on Jazz Pharmaceuticals plc (NASDAQ:JAZZ) is $172.73, implying a 55.63% upside potential from current levels.
The stock of Jazz Pharmaceuticals plc (NASDAQ:JAZZ) was held by 44 hedge funds at the end of Q2 2024 in the Insider Monkey database, with the most significant stake of 1.43 million shares held by Ryan Wilder’s Vestal Point Capital, valued at over $160.10 million.
Overall JAZZ ranks 3rd on our list of the top ADR stocks to buy according to hedge funds. While we acknowledge the potential of JAZZ 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 JAZZ, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
