We recently published a list of the 12 Biotech Stocks with the Biggest Upside Potential. In this article, we are going to take a look at where Viking Therapeutics, Inc. (NASDAQ:VKTX) stands against other biotech stocks with the biggest upside potential.
Improving Trends for Biotech Stocks
While 2024 was a “challenging” year for biotech stocks, JPMorgan is of the view that some names in the industry may be poised for considerable upside in the coming months. On November 28, Johan Hueffer, senior partner and principal of investments at Novo Holdings, appeared on CNBC to discuss his macro perspective on investments in life sciences. He said that biotechs faced difficulty raising capital in the last couple of years. However, that trend has started to improve in the last quarter or two.
Still, there have been impacts on companies that particularly service the pharmaceutical industry, such as contract research organizations (CROs), contract manufacturing organizations (CMOs), and companies that provide tools for research and development. Similar trends have been observed for companies that manufacture tools for production in the pharmaceutical and biotech industries. While these sectors have had ups and downs in the past two years, the trends are starting to normalize now. Hueffer was of the view that the industry is now showing considerable opportunity.
The Fed’s Rate Cuts and Biotech Stocks: Could There Be a Connection?
Similarly, Goldman Sachs shed light on biotech as an often overlooked sector in the investing space. In a note to clients, John Flood, Goldman’s Head of Americas Equities Sales Trading, said that biotech stocks posed an under-the-radar opportunity for investors looking to capitalize on the Fed’s recent rate cuts. Changes in interest rates uniquely affect biotech stocks as they are sensitive to them and often rely on projected future profits. These stocks are also heavily impacted by the cost of capital. Although there is little to no current profitability, these stocks have significant upside potential and pose an “option-like structure” if clinical trials succeed. This makes them especially responsive to changes and movements in interest rates.
Since September, the Fed cut a full point off the funds rate. According to CNBC, the current market pricing is showing just one or two more moves lower in 2025. On January 8, CNBC reported that the Federal Open Market Committee (FOMC) members voted to reduce the central bank’s benchmark borrowing rate to the 4.25%-4.5% target range. However, they also slashed their outlook for expected rate cuts for 2025, bringing it down to two from four and assuming quarter-point increments. These changes are expected to affect biotech stocks.
Flood’s note also highlighted that the biotech industry has recently shown improved fundamentals, attributed to a more favorable regulatory environment and positive clinical outcomes. Despite these tailwinds, Goldman’s data reflects that biotechnology remains under-owned by hedge funds. The sector ranked in the 13th percentile in hedge fund long/short positioning over the past year. Furthermore, it ranked in the 4th percentile over the past five years.
Our Methodology
We used the Finviz stock screener to compile a list of 40 biotech stocks. We then selected the top 12 stocks with the highest analyst upside potential as of January 15, 2025. We have also included the market capitalization of the stocks as of the same date. The list is sorted in ascending order of analysts’ average upside potential. These stocks are also popular among elite hedge funds, as of fiscal Q3 2024.
Why do we care about what hedge funds do? 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).
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Viking Therapeutics, Inc. (NASDAQ:VKTX)
Analyst Upside: 223.62%
Number of Hedge Fund Holders: 41
Viking Therapeutics, Inc. (NASDAQ:VKTX) is a clinical-stage company that develops therapies for metabolic and endocrine disorders. The first three quarters of fiscal 2024 proved productive for the company, with positive results across four of its clinical trials and promising initial results from its new preclinical program. These positive results came from its obesity programs, the treatment of NASH and fibrosis, and others.
The company’s lead program, VK2735, is a source of optimism for investors due to its long-term growth potential. VK2735 is a novel drug that targets glucagon-like peptide-1 (GLP-1) and glucose-dependent insulinotropic polypeptide (GIP) receptors. This combination improves metabolic benefits for conditions such as type 2 diabetes and obesity.
Viking Therapeutics, Inc. (NASDAQ:VKTX) has made considerable progress in VK2735 clinical trials, demonstrating significant weight loss results. This has increased investor confidence regarding its profitability. According to Research and Markets, the obesity treatment market is expected to grow at a compound annual growth rate of 10.24%, going from $18.88 billion in 2024 to around $33.93 billion in 2030. Since treatments like VK2735 deliver more significant weight loss and glycemic control, Viking Therapeutics, Inc. (NASDAQ:VKTX) is poised for long-term growth. Alger Mid Cap Focus Fund, in its fiscal Q2 2024 investor letter, stated that one-third of the US adults suffer from obesity, and they believe that Viking Therapeutics, Inc.’s (NASDAQ:VKTX) upcoming drug has the potential to address a large market.
Alger Mid Cap Focus Fund stated the following regarding Viking Therapeutics, Inc. (NASDAQ:VKTX) in its Q2 2024 investor letter:
“Viking Therapeutics, Inc. (NASDAQ:VKTX) is a clinical-stage biopharmaceutical company focused on developing novel therapies for patients suffering from metabolic and endocrine disorders. Their lead drug VK2809, a beta-selective thyroid hormone receptor agonist, is in development for nonalcoholic steatohepatitis and nonalcoholic fatty liver disease. Their VK2735 drug is a GLP-1 dual agonist being developed for patients with obesity. During the quarter, the company’s shares were negatively impacted by several factors: 1) a challenging environment for biotechnology stocks, exacerbated by Fed policy decisions to maintain elevated interest rates, 2) increased competition in the obesity treatment landscape, 3) manufacturability and scalability concerns regarding Viking’s obesity drug and 4) the absence of strategic partnerships from large pharmaceutical companies. Despite the challenging quarter, we continue to believe that the company’s GLP-1 drug has the potential to be a best-in-class obesity drug given its favorable efficacy and safety profile. Further, with approximately one-third of U.S. adults suffering from obesity, we believe the company’s GLP[1]1 drug has the potential to address a large market once approved.”
Overall, VKTX ranks first on our list of the 12 biotech stocks with the biggest upside potential. While we acknowledge the potential of biotech stocks, 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 VKTX but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 20 Best AI Stock To Buy Now and 30 Most Important AI Stocks According to BlackRock.
Disclosure: None. This article is originally published at Insider Monkey.
