One of the best investment strategies is to buy shares of companies that are presently beaten down by the market, but in whose businesses you have full confidence for growth over the long term. Then, as the market bids up their valuation over time, you'll get the benefit of both the company's actual growth as well as its strengthening reputation among other investors. Such strategies produce the largest investment gains.
Two stocks the market is ignoring today, but could likely become excellent investments in the next decade, are in the biotechnology space. Let's dive in and examine both.
BioNTech (NASDAQ: BNTX) is best known for its pandemic-era coronavirus vaccine collaboration with Pfizer(NYSE: PFE), but over the next 10 years it might be known for being one of the best bargains on the market for those who bought it in 2023. Though it's undeniable that proceeds from sales of its jabs are falling dramatically, with its quarterly revenue contracting by 60% year over year to reach around $1.3 billion in the first quarter of 2023, the company was never planning to be a one-trick pony. And even if its sales fall further as there are fewer buyers of the coronavirus vaccine in the next year or so, its long-term prospects look quite good.
It has four clinical trials in phase 2, and management claims that it'll have multiple new medicines for preventing infectious diseases and treating cancers that will be up for commercialization over the next three to five years. Making new therapies for treating solid tumors will be at the core of its strategy over the coming years, and BioNTech will be continuing to develop technologies like antibody-drug conjugates to succeed in that challenging niche. Eventually, it plans to try to make as many as 10 approval-seeking submissions to regulators annually, all while maintaining its coronavirus vaccine development and manufacturing activities.
There's reason to believe that it'll be able to accomplish that ambitious level of pipeline output, too. Its trailing-12-month total expenses were $3.8 billion, whereas its cash and equivalents total more than $13.2 billion. With so much money in the bank, it can easily continue to develop its new medicines at full speed, even in the very unlikely event that its vaccine sales drop to literally zero.
In terms of its valuation, the biotech's price-to-earnings (P/E) ratio is 2.5, which is close to free compared to the biotech industry's average P/E of 20.7 and also in comparison to the wider market's average P/E of 23.9. So if you're willing to hang on to your shares through the erosion of its vaccine revenue over the next few quarters, you can easily buy this stock at a deep discount, then see its share price appreciate over the next decade as its drug development activities march onward. And since it has some income and plenty of cash, it isn't even as risky of a purchase as many other biotechs of its size.
2. Fulgent Genetics
Fulgent Genetics (NASDAQ: FLGT) operates seven laboratories in the U.S., most of which were fully devoted to processing coronavirus diagnostic tests during the peak of the pandemic. Now that demand for testing is waning, its quarterly revenue is down by 47% compared to a year ago, arriving at $66.2 million in the first quarter. But, its quarterly revenue is still up 283% since three years ago, and the opportunity to scale up was presented by the pandemic that hasn't been wasted.
Now that the peak of coronavirus diagnostic testing sales is past, it's returning to its original aim of providing genetic testing solutions for healthcare businesses, and for its collaborators in biotech and pharma. It sells its genetic testing kits to clinicians and genetic counselors, who use them to screen for rare diseases, predisposition to cancers, and carrying of genes linked to hereditary conditions. In the first quarter, its core non-coronavirus testing revenue rose by 150% year over year, so business is booming.
Since its acquisition of Fulgent Pharma in late 2022, it's also pursued oncology drug development, with one program that's slated to enter phase 2 trials in 2024. Over the next 10 years, it'll have the opportunity to use its oncology testing know-how to facilitate its drug development pipeline, all while raking in money from direct sales of its diagnostics. If it manages to commercialize a medicine, it'll be the icing on the cake, and investors won't need to take on the usual level of biotech stock risk to get exposure to the upside.
Right now, its shares are dramatically underpriced, as indicated by its price-to-book (P/B) ratio of 0.8 and its price-to-sales (P/S) multiple of 1.7. Its P/B under 1.0 implies that the market isn't taking the full value of Fulgent's tangible assets into account in its valuation of the stock. In other words, its valuation is implying that the company is worth less than the money you'd get by simply selling everything it owns, and given that there's a functional business associated with the assets, it's very unlikely that such a valuation is correct. For the record, the medical laboratories industry has an average P/S of 2.1, so it's also undervalued via that metric.
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Alex Carchidi has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Fulgent Genetics and Pfizer. The Motley Fool recommends BioNTech Se. The Motley Fool has a disclosure policy.