We recently published a list of the 10 Best Mid Cap Biotech Stocks to Buy. In this article, we are going to take a look at where Vaxcyte, Inc. (NASDAQ:PCVX) stands against the other best mid cap biotech stocks to buy.
Is the Biotech Sector Oversaturated?
On March 6, Jared Holz, Mizuho health care equity strategist, appeared on CNBC’s ‘Power Lunch’ to discuss investing in biotech and the oversaturation in the sector. He said that looking at the denominator of biotech stocks in the public market, we’re standing at the 700-800 range, depending upon the day. Almost a quarter of these have enterprise values in negative territory. That basically means that investors and companies, in some respects, have exhausted options. For any value to be created, it is necessary to shift focus and devise another plan of attack through an asset they don’t currently own, and resuscitate the company.
In some respects, investors and analysts are always looking for a clear pathway for biotech as a sector to perform better. However, Holz said we are in a tough place if a quarter of the index is filled with companies with more cash than the market cap. That is why he suggested, which some people consider somewhat hyperbolic, getting rid of the tail here, as there are too many assets out there.
Thousands of biotech companies are competing against each other for tiny market or revenue opportunities. Holz opined that venture funds should stop making so many companies that end up superseding each other in a few years. It would be helpful to dissolve all the biotech stocks with negative values and return the cash to shareholders.
READ ALSO: 12 Best Diagnostics Stocks to Invest In Right Now and 7 Most Undervalued Biotech Stocks To Invest In.
How Can One Make Money in Biotech?
Biotechs pose a tempting scenario, as a company’s stock could be worth $5 with a potential blockbuster drug in the pipeline that could cure even cancer. The company’s stock could surge to hundreds of dollars if the clinical trial succeeds. However, at the same time, it could plunge down to $0 if the trial doesn’t. Holz thus says that the sector is incredibly tempting, and thousands of investors put their careers on the line daily to attempt to figure this out.
He characterized biotech as one of the only sectors in all of equities where single stock picking is the only way to make money. Building on his years-long experience covering the industry, he said that the index has barely been up since the past decade. It has been essentially flat. Meanwhile, every other index that one can find has doubled or more. Therefore, there is an obvious issue with the broader complex. But if you find the right asset, you can kill it in the sector.
Our Methodology
We sifted through stock screeners, financial media reports, and ETFs to compile a list of 30 biotech stocks with a market cap between $2 billion and $10 billion. We then selected the top 10 with the highest number of hedge fund holders, as of Q4 2024, and ranked them in ascending order. We sourced the hedge fund sentiment data from Insider Monkey’s database.
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 research scientist in a laboratory holding a vial of a biotechnology drug.
Vaxcyte, Inc. (NASDAQ:PCVX)
Market Cap: $9.26 billion
Number of Hedge Fund Holders: 50
Vaxcyte, Inc. (NASDAQ:PCVX) is a clinical-stage vaccine innovation company that develops high-fidelity vaccines. It develops broad-spectrum conjugate and novel protein vaccines to prevent or treat bacterial infectious diseases. The company re-engineers the creation of highly complex vaccines through advanced chemistry and modern synthetic techniques.
Vaxcyte, Inc. (NASDAQ:PCVX) remains well-positioned to maintain continued positive momentum across its PCV (pneumococcal conjugate vaccine) franchise. Apart from this franchise, its lead clinical candidate is VAX-24, a 24-valent pneumococcal conjugate vaccine to prevent invasive pneumococcal disease. The vaccine holds significant potential to become a best-in-class PCV in a $7 billion global market expected to reach nearly $13 billion by 2027. The vaccine has received FDA Breakthrough Therapy designation for preventing invasive pneumococcal disease in adults.
TD Cowen analyst Tara Bancroft maintained a Buy rating on Vaxcyte, Inc. (NASDAQ:PCVX) on March 7 and set a price target of $135.00. Baron Health Care Fund also expressed bullish sentiments for Vaxcyte, Inc. (NASDAQ:PCVX) in its Q3 2024 investor letter, saying the following:
“We purchased Vaxcyte, Inc. (NASDAQ:PCVX), a biopharmaceutical company with a next-generation vaccine platform. Vaxcyte recently showed data suggesting that their pneumococcal vaccine is better than the current vaccines on the market today. Pneumococcal vaccines are one of the largest vaccine categories today, with approximately $8 billion in worldwide sales. The vaccines are recommended for children under 5 or adults over 65 to prevent pneumococcal infection. The incumbents’ technology has hit a ceiling where their vaccines require too much protein carrier, which causes immune interference and lowered response to the pneumococcal antigen. As Pfizer and Merck have tried to add more serotypes to their vaccines, they’ve lost efficacy on some of the historically relevant serotypes. Vaxcyte’s platform allows a lower protein carrier/antigen ratio so the company can include more serotypes while minimizing carrier suppression. Vaxcyte recently reported impressive Phase 1/2 data for their VAX31 vaccine in adults. VAX31 looked at least as good as Pfizer’s standard of care PCV20 vaccine on the existing 20 serotypes (and was statistically superior on several serotypes) and added strong immune coverage of 11 additional serotypes. VAX31 now covers 95% of circulating strains in US adults and 98% in the EU. The US will now run Phase 3 studies in adults and start a Phase 1/2 for VAX31 in children. We think that the pneumococcal vaccine market will be $10 billion-plus in 2030, that VAX31 can capture significant share, and that this will be a durable business.”
Overall, PCVX ranks 5th on our list of the best mid cap biotech stocks to buy. While we acknowledge the potential of PCVX 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 PCVX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stocks To Buy Now and 30 Best Stocks to Buy Now According to Billionaires.
Disclosure: None. This article is originally published at Insider Monkey.
