Investors approach buying shares of a company with different goals in mind. Warren Buffett admittedly used to look for beaten down companies that weren't necessarily great businesses, but were worth more than what they were trading for. He called this "cigar butt investing," equating the small rise in the shares of a beaten down stock to the last puff of a nearly smoked cigar.
Other investors spend less time calculating valuation and more time imaging how bright the future could be. Usually these investors focus on young companies that are growing rapidly and hoping to take over an industry or invent a new one. There are other types of investing, but one that can double your money is buying shares in companies with temporary setbacks that impatient investors aren't willing to wait out. Here are two such healthcare stocks that could double your money.
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BioMarin Pharmaceutical
BioMarin (BMRN 1.16%) had a 2020 to forget. The company develops drugs for rare diseases that have few patients. In the absence of market demand, the competition is less fierce and prices are higher. Not surprisingly, gross margins -- profit after expenses directly related to creating products -- are consistently around 80% for the company, among the highest in the pharmaceutical industry. Although growth has slowed for BioMarin over the past decade, sales still increased a respectable 14% in 2018 and 2019. However, this year the company suffered a surprising delay in the clinical trial for Roctavian, the company's gene therapy drug for hemophilia A. In August, the U.S. Food and Drug Administration asked the company to provide at least another year of data before approving the drug (the first year will be complete in November). The stock promptly fell 37% and now sits 44% below its highs from earlier this year.
Despite this surprise, the steep drop in the stock price may be giving investors with patience an opportunity to pick up shares of a company that has historically been well-managed and immune to the onslaught of generic drug substitutions. The stock currently sits at levels it first reached in 2013. While waiting for Roctavian's eventual launch in mid- to late-2022, the company enjoys virtual monopolies in treating rare genetic diseases such as dwarfism and metabolic disorders. Despite BioMarin missing a potential growth driver in treating an additional disease, it's likely Roctavian will be approved and investors who were patient will be rewarded with a stock price back where it was before the unexpected announcement.
OPKO Health
OPKO Health (OPK -1.36%) entered 2019 with fewer sales than in each of the past three years. Shares had fallen more than 90% from 2015 highs shortly before the company used $1.47 billion in stock to buy BioReference Laboratories. It was a curious acquisition, as OPKO, a drug maker with $91 million in revenue, was purchasing a lab company that generated nearly 10 times the acquirer's revenue. Ostensibly, the deal was to use the cash-generating lab business to subsidize the cost of drug research and development. If that was the idea, things haven't worked out as planned. In 2019, the lab business generated nearly 80% of revenue. Whatever the intentions were, the coronavirus pandemic is giving OPKO a second lease on life.
The diagnostics business, still called BioReference Laboratories, has benefited from the increased need for testing due to worldwide coronavirus cases. In the second quarter of this year, management reported a 33% increase in sales, primarily attributable to COVID-19 testing. Further, the company reported positive net income, something it hasn't done in any full year for at least the past decade. The second quarter was also highlighted by agreements with several high-profile clients to conduct COVID-19 testing, such as the National Football League, the National Basketball Association, several college football conferences, and the New York City school system. The company recently reported third-quarter results and, despite the stock falling 16%, testing volume was up 61% over the second quarter. Diagnostics revenue increased 117% over the prior year to $392 million. The company again was able to produce a profit in the quarter.
Although investors weren't happy with the results, the stock remains up more than 130% from where it entered the year. With high-profile agreements to provide testing, and new records in both tests and cases each day, the company is poised to ride the coronavirus wave to financial performance. Even if a vaccine is approved shortly, it might take a year to get it distributed to those who need it. Couple the distribution challenges with questions about the effectiveness of the vaccine and a population in which only half the people say they will get the vaccine, and the need for testing may persist for years to come. Despite a checkered past, OPKO Health has the potential to double investors' money unless the coronavirus disappears like magic.
