The events of the last few years have made biotech investing look easier than it is. But, investing in biotech is not for the faint of heart. Many of these undervalued biotech stocks represent companies are among the smallest of the small-cap stocks. Some are still in the pre-revenue stage. And even if they have a robust pipeline, it can take years to get a drug approved. And many drugs never get approved.
The objective is two-fold. First, you need to find the companies most likely to have that breakthrough. And second, to find the companies that are doing that while still being undervalued compared to the sector. The focus of this article is to point you to three of these undervalued biotech stocks that have the potential to deliver stellar returns for patient investors.
The story of BioNTech (NASDAQ:BNTX) over the last three years begins and ends with its role in developing a vaccine to combat Covid-19. BioNTech went public in October 2019 and has rewarded investors with 681% stock price appreciation.
However, the stock is down 72% from its high of over $389 a share in November 2021. And as demand for the company’s vaccine, which it co-developed with Pfizer (NYSE:PFE), wanes, the effects are clearly displayed in the company’s bottom line.
On August 9, BioNTech posted a measly $167 million of revenue. That’s a sharp contrast from the $3.2 billion in revenue the company posted in the same quarter in 2022. And analysts are forecasting the company’s year-over-year earnings to decrease by over 50%.
So what puts BioNTech on this list of undervalued biotech stocks? It comes down to the company’s pipeline which currently has 38 drugs in the clinical trial stage, including two in Phase 3 trials. Each of these drugs was developed using mRNA technology which was BioNTech’s contribution to the Covid vaccine. The company has an opportunity to show how to apply the technology in other areas such as the treatment of specific cancers.
United Therapeutics (UTHR)
One of the dominant and controversial themes of 2023 is environmental, societal, and governance () investing. In theory this rewards companies who focus on the public good. Of course, that’s where the definition can get messy, but United Therapeutics (NASDAQ:UTHR) has a business model that reflects the best of what ESG investing means.
The company’s two-fold mission beyond researching a cure for hypertension is to deliver superior financial performance for shareholders while providing communities with environmentally friendly energy strategies. To that end, the company became a public benefit corporation in 2021. It’s also been named one of the Top 10 Corporate Citizens among U.S. drug manufacturers.
That’s all well and good, but does UTHR stock represent a good value? The fundamentals suggest it does. The company has a forward P/E ratio of just 12x. The company is also expected to grow earnings by 10%, and analysts give the stock a 25% upside from its current value.
iShares Biotechnology ETF (IBB)
Investing in individual biotech stocks is not for every investor. That’s particularly true when taking a chance on undervalued biotech stocks. Fortunately, that’s one reason that exchange-traded funds (ETFs) exist. And the iShares Biotechnology ETF (NASDAQ:IBB) is a solid choice.
Like all ETFs, IBB invests in a basket of biotech stocks. This includes many of the top large-cap stocks like Vertex Pharmaceuticals (NASDAQ:VRTX) and Amgen (NASDAQ:AMGN). But it also gives investors exposure to many small-cap stocks that trade at a discount to their average consensus price targets.
Other benefits of this fund include a respectable 0.44% annual expense ratio and a 0.25% dividend yield. This is also a large fund with 7.45 billion in assets under management. This helps smooth out some of the volatility inherent in the sector.
On the date of publication, Chris Markoch did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.