It’s that time of year again, the time when all the top firms that we cover here at 24/7 Wall St. start to make their stock picks and prognostications for 2016. This not only gives investors a little bit of a head start on year-end portfolio reshuffling, but it also gives them a look at what the overall macro thoughts for the coming year are at the big brokerages and banks.
The analysts at Cowen have gone through the fundamentals and the balance sheets, and they have produced five outstanding health care picks that include devices, biotech and specialty pharmaceuticals. We picked one of the biotechs with the biggest upside to go along with the other two best ideas.
Celldex Therapeutics
This is one the best idea biotech stock picks with the biggest upside to the Cowen price target. Celldex Therapeutics Inc. (NASDAQ: CLDX) is developing targeted therapeutics to address devastating diseases for which available treatments are currently inadequate. The company’s pipeline is built from a proprietary portfolio of antibodies and immunomodulators used alone and in strategic combinations to create novel, disease-specific therapies that induce, enhance or suppress the body’s immune response.
Earlier this year, the company received breakthrough therapy designation from the U.S. Food and Drug Administration (FDA) for its drug Rintega, and recently it posted strong two-year survival clinicals when used with Roche’s Avastin. Cowen is bullish on the name and cites the company’s very attractive pipeline of first-in-class and fully owned oncology assets, and the firm expects major pipeline updates to drive stock appreciation in 2016.
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Cowen also feels that Celldex’s rindopepimut is underappreciated as peptide vaccines, and in general such therapeutic strategies have fallen out of favor as investors focus on hot immuno-oncology fields like checkpoint inhibitors, engineered T cells and novel receptors. Cowen also thinks the Phase 2 data is being overlooked, and that the ACT IV study is stopped early next year for efficacy. The firm is ultimately confident in Phase 3 success.
The Cowen price target for the stock is $28, and the Thomson/First Call consensus target is even higher at $34. The stock closed on Wednesday at $15.30.
Medtronic
This company is now based in Ireland after the gigantic combination with Covidien. Medtronic PLC (NYSE: MDT) is a medical devices giant, and many on Wall Street saw this historical merger, probably one of the largest in the medtech industry, as a momentous event, leading to the creation of a unique company that combines the extensive and innovative abilities of both Medtronic and Covidien. The combined company, with officially joint forces of over 85,000 employees present in more than 160 countries and annual revenues of $27.4 billion in 2014, will now expedite Medtronic’s three fundamental strategies of therapy innovation, globalization and economic value.
The stock was under pressure last summer, first due to emerging markets concerns and then after earnings, which analysts believe the market misunderstood. The stock has rallied strongly since late September and is now trading in the range it did earlier this year.
The Cowen analysts feels that the contributions from Medtronic’s three growth drivers, which they cite as therapy innovation, globalization and services/solutions, should support a 5% or greater constant currency top line growth in 2016 and beyond. They also feel that the Covidien earnings potential is underappreciated and the change in domicile is also a positive.
The company is also pursuing a huge new restructuring move that is expected to free up $9.3 billion in cash, which can help pay down debt, buyback shares or maybe even help with a selective acquisition.
Medtronic investors receive a 1.97% dividend. Cowen has a $90 price target, and the consensus target is $87.32. Shares closed Wednesday at $78.57.
Shire
This is one of the top picks on Wall Street in specialty pharma. Shire PLC (NASDAQ: SHPG) develops, licenses, manufactures, markets, distributes and sells pharmaceutical products. It offers various products for the treatment of attention deficit hyperactivity disorder. It also focuses on the development of resources projects in various therapeutic areas, including rare diseases, neuroscience, ophthalmics, hematology and gastrointestinal disorders, as well as early development projects primarily on rare diseases.
Many analysts were perplexed by the somewhat mixed market reaction to the bid from Baxalta, which was spun off from Baxter earlier this year, and the market correction in the fall provided investors a compelling opportunity to refocus on company’s true intrinsic value. Shire publicly placed its bid for Baxalta on August 4, and Baxalta initially said the bid was too low. Recent reports indicate Shire is looking to sweeten the offer yet again, and this time may be the charm.
The Baxalta acquisition could produce $13 billion in revenues for Shire’s rare disease portfolio by 2020, according Bloomberg Intelligence analysis. Sales at the combined entity are projected to reach $20 billion. In addition, the upcoming Lifitegrast PDUFA on October 25, which was granted a priority review by the FDA, is an important catalyst for Shire on a standalone basis and for the Baxalta bid prospects.
The $325 Cowen price target is higher than the consensus target of $268.83. The stock closed Wednesday at $200.32.
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All these stocks offer compelling values for 2016, and all have backed up enough in price for investors to get an outstanding entry point. They are suitable for more aggressive growth accounts.
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