We recently compiled a list of the 10 Stocks with Biggest Upside Potential According to Hedge Funds. In this article, we are going to take a look at where Royalty Pharma plc (NASDAQ:RPRX) stands against the other stocks with biggest upside potential.
The US equities saw a strong move after the September jobs report exceeded the economists’ estimates. As per the report, the US economy added 254,000 jobs last month, exceeding the economists’ estimates of 150,000 jobs. As a result of strong job gains, the unemployment rate was pushed lower to 4.1% from 4.2%. The strong jobs report puts rest to the rumors that the US Fed might aggressively lower the rates in a bid to keep the labor market afloat. The apex bank lowered its key benchmark rate last month for the first time in over 4 years by 50 basis points. This led to the current range of 4.75% – 5% from the 23-year high of 5.25% – 5.5%.
Several renowned economists believe that the US Fed will decrease the pace of rate cuts. They expect a 25-basis points reduction instead of another half point at its next meeting on 6 -7 November. The September jobs report hints at the underlying health of the labor market, which is healthier than initially expected. This means that the private job creation remains robust.
U.S. Equities September 2024- Commentary
As per S&P Global, the S&P 500 saw an increase of ~2.02% in September, resulting in a YTD return of ~20.81%. The September month was dominated by the news about inflation remaining under control, and the US Fed delivering a 0.50% rate decrease, with the expectations of two 0.25% decreases expected later in the year. Additionally, Q2 2024 earnings were able to set a record, with more earnings records expected for Q3 2024 and Q4 2024. Notably, even China also contributed at the end of the month, ensuring low-cost U.S. supplies. China needs to continue to do so to achieve its goal of supporting real estate and encouraging consumer spending.
Market experts believe that while the September month saw decent momentum in the US equities, October kicked off on a strong note. The release of the strong jobs report was enough to erase the losses on the nervousness over Middle East tensions and port strikes. The Chief Investment Officer at Independent Advisor Alliance believes that the current economic environment is an excellent time to own equities. This optimism stems from the fact that the economy has been expanding, the job market remains solid (if not strong) and the US Fed has not only stopped raising rates but is focused on cutting them.
After Strong Jobs Report, What Lies Ahead?
Market experts opine that the US Federal Reserve decided to go for a soft landing by increasing the interest rates to slow inflation without negatively impacting the labor market to the point of a recession. Charles Schwab believes that investors should not expect a uniform economic recovery. The strength in services hiring continues to offset the weakness in manufacturing. The company highlighted that healthcare and government are the areas that have had strong hiring trends over the past few months. Manufacturing has been witnessing a recession, as hinted by the continued contraction of the ISM manufacturing index. The company believes that rate-sensitive areas, like utilities, financials, and real estate investment trusts (REITs), are expected to deliver strong performance moving forward.
Morgan Stanley Wealth Management believes that the US Fed doesn’t have to cut rates aggressively in the upcoming meetings. The investment firm expects that investors should look for value across the whole market, and emphasize quality companies as the market continues to broaden. While the economy has not strengthened for the small-caps, the firm expects that mid-caps provide a good investment opportunity as a soft landing becomes more visible.
Our methodology
To list 10 Stocks with Biggest Upside Potential According to Hedge Funds, we did extensive research and sifted through online rankings. After compiling a list of 25-30 stocks, we narrowed the list to the ones having the biggest upside potential, as of October 4. Finally, the selected stocks have been ranked in the ascending order of their hedge fund sentiment, 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 scientist in a laboratory looking through a microscope, surrounded by petri dishes and beakers while researching new biopharmaceutical advances.
Royalty Pharma plc (NASDAQ:RPRX)
Average Upside Potential: 51.35%
Number of Hedge Fund Holders: 34
Royalty Pharma plc (NASDAQ:RPRX) is engaged in operating as a buyer of biopharmaceutical royalties and a funder of innovations in the biopharmaceutical industry in the US.
Wall Street experts opine that Royalty Pharma plc (NASDAQ:RPRX)’s growth trajectory is expected to be aided by its high-quality royalty portfolio having an average royalty duration of ~12 years. The FDA’s approval of Voranigo should be a new growth driver. Royalty Pharma plc (NASDAQ:RPRX) raised its full-year 2024 guidance and it now expects portfolio receipts to be between $2.7 billion and $2.775 billion.
Royalty Pharma plc (NASDAQ:RPRX) is a leader when it comes to large royalty transactions and has a strong repeat business record with partners. Its development stage pipeline should unlock significant value, with expectations to garner more than $1.2 billion in annual peak royalties. Wall Street believes that Royalty Pharma plc (NASDAQ:RPRX)’s late-stage development pipeline possesses significant potential to contribute to future earnings. The company has a robust deal pipeline, with $14.7 billion in transactions announced since 2020.
The company has exciting pipeline opportunities like LP(a) drugs and frexalimab, which are anticipated to help it in the upcoming years. Given the strength and diversification of the company’s portfolio, it remains well-placed for long-term revenue growth. Its proactive approach to identifying and investing in innovative therapies should act as a critical growth driver despite potential market challenges.
The Goldman Sachs Group increased its price target on the shares of Royalty Pharma plc (NASDAQ:RPRX) from $50.00 to $51.00, giving a “Buy” rating on 14th August.
Patient Capital Management, a value investing firm, released its second quarter 2024 investor letter. Here is what the fund said:
“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 5th on our list of the top stocks with biggest upside potential according to hedge funds. While we acknowledge the potential of RPRX as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for a deeply undervalued AI stock that is more promising than RPRX 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.
