And just like that, stocks have landed back in the green. Following a several week long market performance that can only be described as tumultuous, the market notched its best single-day advance in almost twelve years. Driven by Congress’s $2 trillion coronavirus spending bill designed to provide relief from the pandemic’s economic impact, the Dow Jones posted its largest one-day climb since 1933, a more than 11% jump to be precise. As for the S&P 500, it recovered from its lowest point since 2016, with it making its biggest one-day move since October 2008.
With it remaining unclear if the improved sentiment has pushed the market to an inflection point, investors are relying on the pros for guidance. One such expert is investing guru James Flynn. The combination of a bachelor’s of science degree in cellular and molecular biology and economics from the University of Michigan and years of experience as an analyst has given him a clear insight into the world of healthcare. Flynn went on to join investing firm Deerfield in 2000, and has since earned a reputation as one of the best healthcare stock pickers in the game. With vast knowledge of the space, it’s clear why Wall Street pays attention when the investing titan pulls the trigger.
To this end, we pulled up TipRanks’ database to take a closer look at three Buy-rated stocks Flynn picked up during the recent market sell-off. Upon further examination, each ticker boasts a bargain price tag and substantial upside potential. Let’s take a closer look.
Aerie Pharmaceuticals (AERI)
Specializing in eye care, Aeri Pharmaceuticals develops and commercializes innovative therapies to treat glaucoma, dry eye, retinal diseases and other diseases of the eye. While shares have slumped lower in the last month, some members of the Street believe its current $13.49 share price is an attractive entry point.
Taking this stance is James Flynn. On March 24, the healthcare pro boosted his AERI holding by 43%, or 759,892 shares. With his total position coming in at 2,532,147 shares, he is now a 5.5% owner of the company.
After speaking with management on the same day that Flynn made the purchase, Mizuho Securities analyst Difei Yang remains confident in AERI’s long-term growth prospects. As the COVID-19 pandemic weighs down other tickers, Yang is expecting some short-term revenue upside for AERI. With patients preparing to shelter in place and less elective procedures like laser therapy and surgical interventions are performed, more doctors and pharmacies are promoting and filling 90-day prescriptions of its Rhopressa and Rocklatan products.
“We believe that this may create a short-term tailwind to revenues as patients stock up on supply…In addition, management noted that doctors are increasingly writing scripts without office visits, and that home prescription delivery is being increasingly pushed; this could offset partially the headwinds from ‘social distancing’,” Yang explained.
It should be noted that there’s a risk that as healthcare providers become more overwhelmed by the pandemic and as the pace of prescription refills slows, revenues could take a hit in the next one to three months. Having said that, Yang points out that the company doesn’t expect there to be an impact on clinical trial timing and that it has enough supply to weather the current storm. “Furthermore, we believe that AERI has sufficient cash on hand and has a solid balance sheet,” the analyst added.
In line with this optimistic approach, Yang reiterated a Buy rating and $54 price target. Should the target be met, shares could be in for a huge twelve-month gain of 300%. (To watch Yang’s track record, click here)
In general, the rest of the Street is on the same page. A Strong Buy consensus rating breaks down into 9 Buys and 1 Hold dished out in the last three months. While less aggressive than Yang, the $38.20 average price target still leaves room for 180% upside growth. (See Aerie stock analysis on TipRanks)
Axonics Modulation Technologies (AXNX)
With the goal of becoming the leader in sacral neuromodulation, med tech company Axonics wants to provide solutions to patients with urinary and bowel dysfunction. Like Aerie, the last month has seen its share price take a fall, but at $20.76 apiece, this could be a compelling opportunity.
Flynn jumped on this opportunity on March 24. Acquiring a new position, the investing guru bought almost 1.8 million AXNX shares. As a result, his stake in the company lands at 5.2%.
After the company’s fourth quarter 2019 earnings release on March 4, several analysts think that AXNX represents a bright spot in an otherwise gloomy economic landscape. Even though adjusted loss per share missed the consensus estimate, revenue was in-line with management’s pre-announcement and beat the Street’s call. On top of this, management reiterated that it is on track to meet the revenue guidance for both Q1 2020 and full year 2020.
As for the earnings miss, analyst Kaila Krum of SunTrust Robinson notes that it came as a result of its investments in sustainable long-term growth. AXNX is now in over 300 U.S. accounts, so these efforts are clearly paying off. “Shares of Axonics trade at about 7.5x 2021E revenue, though the company’s growth profile deserves a scarcity premium, in our view, and we think the stock will continue to move higher as the market expansion story plays out,” she commented.
Bearing this in mind, Krum left a Buy recommendation on the stock. In addition, she bumped up the price target from $38 to $48, implying 117% upside potential. (To watch Krum’s track record, click here)
Meanwhile, Needham’s Mike Matson argues that the results indicate AXNX is gaining market share with respect to its r-SNM product. “We think that the Q4 2019 results are evidence that the US r-SNM launch is going well and management indicated that momentum has continued to build in Q1 2020. We believe that the r-SNM launch in the US should continue to drive very strong revenue growth and upside to consensus through both market share gains and market expansion,” he stated. It makes sense, then, that Matson also kept a Buy rating and $48 price target on this healthcare name. (To watch Matson’s track record, click here)
With 100% Street support, the consensus is unanimous: AXNX is a Strong Buy. At $48, the average price target matches the analysts’ forecasts. (See Axonics stock analysis on TipRanks)
Brookdale Senior Living (BKD)
Brookdale Senior Living is best known for being one of the largest owners and operators in the senior housing industry, boasting assets that include owned real estate, home health and a hospice business. While it hasn’t been immune to the broader market sell-off, one analyst thinks it looks like a steal based on its long-term growth prospects.
Trading at $4.26 per share on March 9, this price tag was incentive enough for Flynn. Snapping up 17.3 million shares, the healthcare pro’s new position makes him a 9.4% owner of BKD.
That being said, BKD’s growth story does include some headwinds. The COVID-19 pandemic has hit the space hard, and the industry is struggling with increased preparation and mitigation expenses as well as a decline in sales and move-in activities. As a result, management ultimately decided to withdraw its full year 2020 guidance given the high level of uncertainty. However, it should be noted that several of its peers have done the same.
Some investors have expressed concern about the effects of the coronavirus-driven headwinds, but Jeffries analyst Jason Plagman believes BKD’s balance sheet will help it hold up strong. “While BKD’s Net Debt/EBITDA remains elevated, we don’t expect a NT liquidity issue given that BKD had over $300 million of cash & equivalents as of December 31 and $172 million of revolver capacity that was accessed in March… BKD has $339 million of debt maturities in 2020 and $331 million in 2021 which are likely to be refinanced at attractive rates,” he explained.
As any negative impacts of COVID-19 will most likely speed up lease exits and restructuring, Plagman predicts upside to his full year 2021 estimate for cash flow. The analyst added, “Additionally, we believe BKD’s share price doesn’t adequately reflect the LT value of its assets, including its portfolio of owned communities which generate positive FCF.”
All of this prompted Plagman to maintain a Buy call on this stock. However, he did cut the price target from $10 to $6, but this still implies that shares could soar 92% in the next year. (To watch Plagman’s track record, click here)
What do other analysts have to say? It turns out that opinions are split evenly down the middle. 2 Buys and 2 Holds received in the previous three months add up to a Moderate Buy analyst consensus. Shares could skyrocket 132% in the next twelve months based on the $7.25 average price target. (See Brookdale’s price targets on TipRanks)