The firms that we cover on Wall Street increasingly are starting to agree that the volatility the stock market is encountering now, and the beating the economy has taken this year, should continue to fade in the fourth quarter of 2020 and especially into 2021. However, the future may be one of stock market gains that are much lower than the norm has been over the past 10 years. When that is the case, then investing strategies often shift from indexing to a more disciplined stock-picking routine. That’s when investors need solid growth ideas.

Jefferies highlights the firm’s top growth stocks to buy each week, and this week is no exception. While these stocks are better suited for investors that have a higher risk tolerance, they all make good sense now and have outstanding upside potential. We found four health care stocks that look extremely attractive now, and they are among the top Jefferies U.S. growth calls for this week.

While all four are rated Buy at Jefferies, it is important to remember that no single analyst report should be used as a sole basis for any buying or selling decision.

Charles River Laboratories

This is one of the premier contract research companies in the sector and a more conservative idea for growth investors. Charles River Laboratories International Inc. (NYSE: CRL) is the leading early-stage drug development contract research organization. It provides animal research models and preclinical drug development services to biopharmaceutical companies, government agencies and academic institutions.

The company also offers microbial and biologics testing solutions for the production and release of products manufactured by clients. Second-quarter revenue grew 4% year over year (and was 7% ahead of the street) on strength in discovery and assessment and manufacturing. Preclinical drug development fundamentals remain positive, and COVID-19 could serve as a catalyst for more outsourcing.

Jefferies noted this in the research report:

Our view is predicated on four key factors:

1) our proprietary model showing preclinical growing fastest over the next 5 years.
2) The company is one of the best-positioned to benefit from biotechs’ funding windfall.
3) MS can benefit from the enduring nature of COVID manufacturing.
4) Charles River valuation remains near the group mean despite a better fundamental outlook. Our 2021 EPS estimate is ~7% ahead of consensus.

The analysts raised the price target on Charles Rivers Laboratories stock from $213 a share to $254. The Wall Street consensus target is $238, and the shares closed at $220.01 apiece on Monday.

Gilead Sciences

This stock is trading a very reasonable 9.46 times estimated 2020 earnings. Gilead Sciences Inc. (NASDAQ: GILD) is a biopharmaceutical company that discovers, develops and commercializes therapies for the treatment of HIV/AIDS, liver disease, cancer and inflammation. The acquisition of Kite Pharmaceutical in 2017 allowed for entry into the CAR-T space, indicating a renewed focus in oncology.

The company’s products include Stribild, Complera/Eviplera, Atripla, Truvada, Viread, Emtriva, Tybost and Vitekta for the treatment of human immunodeficiency virus (HIV) infection in adults; and Harvoni, Sovaldi, Viread and Hepsera products for the treatment of liver disease.

Gilead jumped into the mergers and acquisitions ring with a massive purchase this weekend, and the analysts said this:

On Sunday the company announced the acquisition of Immunomedics, Inc. (NASDAQ: IMMU) for $21 billion. We are positively biased on the acquisition as this moves Gilead quickly into a commercial footprint for solid tumors. The primary investor pushback we have heard is that the company is paying too much for the asset. In our conversations, the company suggested their bullishness is based on: assumptions for triple negative breast cancer and moving upstream into 1L, high confidence in bladder cancer, future potential on HR+ breast cancer and an earlier phase 2 basket study in lung cancer. While Gilead still has several deals to digest, we highlight these add a lot more drivers, clear momentum in oncology and less reliance on HIV.

Investors receive a 4.10% dividend. Jefferies has a $78 price target, which is in line with the Wall Street consensus target of $78.38. Gilead Sciences stock ended Monday’s trading at $66.34 per share.

This off-the-radar idea has outstanding potential. IGM Biosciences Inc. (NASDAQ: IGMS) operates as a biotechnology company that develops antibodies for the treatment of cancer. Its IgM platform expands on the inherent properties of IgM antibodies to allow for the rapid development of engineered therapeutic antibodies.

The firm’s product pipeline includes:

• IGM-2323, a CD20 x CD3 bispecific IgM antibody designed to treat patients with B cell non-Hodgkin’s lymphoma and other B cell malignancies
• IGM-8444, an IgM antibody targeting Death Receptor 5 for the treatment of patients with solid and hematologic malignancies
• IGM-7354, which will target the delivery of IL-15 with the goal of inducing immune cell stimulation and proliferation

Jefferies is positive on the prospect of upcoming data:

We were out with a preview ahead of the release of initial clinical data for IGM-2323 in B Cell lymphoma and Follicular Lymphoma at ASH. While other CD20 T cell engager programs for these indications include Regeneron’s REGN1979, Roche’s mosunetuzumab and glofitamab, and Genmab’s GEN3013, we estimate 21,000 and 14,000 new cases of the two in the US in 2020, suggesting a large available market for these therapies.

The Jefferies price target is $68, much lower than the consensus across of $80.22. The last trade on Monday was reported at $61.25, up over 11% on the day.

Horizon Therapeutics

This may be a great play for more speculative accounts. Horizon Therapeutics PLC (NASDAQ: HZNP) focuses on researching, developing and commercializing medicines that address unmet treatment needs for rare and rheumatic diseases in the United States and internationally.

The company’s orphan and rheumatology marketed medicines include the following:

• Krystexxa, a medicine for the treatment of uncontrolled gout
• Ravicti for use as a nitrogen-binding agent for chronic management of adult and pediatric patients
• Procysbi for nephropathic cystinosis, a rare and life-threatening metabolic disorder
• Actimmune for chronic granulomatous disease
• Rayos for the treatment of multiple conditions, rheumatoid arthritis
• Buphenyl tablets for oral administration and Buphenyl powder for oral, nasogastric or gastrostomy tube administration
• Quinsair, a formulation of the antibiotic drug levofloxacin for the management of chronic pulmonary infections due to pseudomonas aeruginosa in adult patients with cystic fibrosis

In January, the U.S. Food and Drug Administration (FDA) approved Tepezza (teprotumumab-trbw) for the treatment of adults with thyroid eye disease (TED), a rare condition in which the muscles and fatty tissues behind the eye become inflamed, causing the eyes to be pushed forward and bulge outwards (proptosis). The approval represented the first drug approved for the treatment of TED.

Jefferies is bullish on the prospects for the drug:

We hosted a call with a high-volume oculoplastic surgeon to discuss their experience in treating TED patients with Tepezza. We highlighted that Tepezza has become an integral part of their TED treatment protocol and has consistently demonstrated efficacy in proptosis, clinical activity score reduction and QoL improvements. Specifically, this surgeon has settled into prescribing Tepezza to 5-6 patients/month from 7-8 earlier. Additionally, the surgeon noted that prior skeptics have started to try Tepezza as well as community physicians, which in our view should help sustain the early momentum.

The $90 Jefferies price objective is less than the $96.42 consensus target. Horizon Therapeutics gained almost 9% on Monday to close at $76.60.

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These four high-conviction health care stock ideas from the analysts at Jefferies all make sense for investors looking to gain exposure to a sector that should continue to do well the rest of 2020 and for years to come, given the aging population both here and around the world.

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