Nearly everyone likes an underdog. They're the ones who don't get the respect they deserve but often deliver pleasant surprises.
Three Motley Fool contributors think they've identified a handful of healthcare stocks that are underdogs. Here's why they view Bristol Myers Squibb (BMY 0.42%), Moderna (MRNA 0.40%), and Pfizer (PFE -0.67%) as surprisingly underrated stocks to buy right now.
A top pharmaceutical stock trading at a significant discount
David Jagielski (Bristol Myers Squibb): There are no shortage of reasons for investors to feel bearish on Bristol Myers Squibb. The top pharmaceutical company has a lot of debt on its books due to acquisitions, and there are concerns that its growth prospects won't be all that great as it loses exclusivity for multiple top drugs, including Eliquis and Opdivo.
However, with the stock down 17% in three years and trading at just 7 times its estimated future earnings (according to analyst expectations), investors appear to be heavily discounting it right now. The good news is that with such a reduced valuation, the stock provides investors with an attractive margin of safety should its growth strategy fall short of its expectations.
BMS has been obtaining new drug approvals and turning to acquisitions to bolster its portfolio of drugs, but that hasn't been enough to convince investors that this company -- which for decades has been growing and innovating -- will be able to develop enough new products to overcome its current headwinds.
By 2026, the company projects that its portfolio of new products will bring in $10 billion in annual revenue. Unfortunately, that may not be enough comfort for investors as Opdivo and Eliquis generated a combined $21 billion in annual revenue in 2023. Future losses from those products alone could offset the gains the company gets from new products.
There is undoubtedly some risk with Bristol Myers Squibb, but the company isn't ignoring its challenges and is investing in innovating and growing its business. It may take some time to achieve strong gains, but at such a low valuation, the stock can make for a potentially underrated investment to hang on to if you're willing to be patient and hold on for multiple years.
The reasons to like this stock are hiding in plain sight
Keith Speights (Moderna): It's no secret why Moderna's share price has plunged close to 36% this year. The messenger RNA (mRNA) pioneer's revenue continues to decline. It posted another hefty net loss in the second quarter of 2024. To make matters worse, Moderna cuts its 2025 sales forecast while delaying the development timeline for several new products.
But is Moderna underrated? I think so. Investors are overlooking the fact that the company's pipeline is loaded with promising programs. Moderna expects to win regulatory approvals for 10 new products over the next three years.
Two of those new products could be on the market relatively soon. Moderna expects to file for approvals of its next-generation COVID-19 vaccine and its combination flu/COVID vaccine this year.
Multiple key late-stage readouts are on the way as well. Moderna should report phase 3 results for cytomegalovirus (CMV) vaccine mRNA-1647 as early as year-end. It's also on track to begin generating data later this year from pivotal studies of mRNA-3705 and mRNA-3927 targeting metabolic disorders methylmalonic acidemia and propionic acidemia, respectively.
Moderna recently launched its respiratory syncytial virus (RSV) vaccine mResvia, which should have huge commercial potential. The company plans to soon file for U.S. approval to expand the label for the vaccine to include high-risk adults ages 18 to 59.
Between 2026 and 2028, Moderna expects revenue growth of more than 25% annually thanks to its new products. With shares trading at a price-to-sales ratio below 4.9 (cheap for a biotech stock), I think Moderna could be a big winner in the future.
The slump won't last forever
Prosper Junior Bakiny (Pfizer): It's no secret: Pfizer is not investors' favorite stock right now, and it hasn't been for a while. In the past two years, the company's financial results have failed to impress, to say the least. Of course, that's only in comparison to the earlier pandemic years, including 2022, when Pfizer became the first pharmaceutical company to generate more than $100 billion in annual sales. The drugmaker won't return to these heights soon, but the market is severely underrating Pfizer's potential.
The company has significantly expanded its pipeline through internal development and acquisitions thanks to its pandemic-related work. Pfizer now has the means to develop important medicines across various therapeutic areas. It strengthened its position in oncology, it is going after the promising GLP-1 weight loss market, and its vaccine pipeline is also promising. Pfizer has 113 programs in its pipeline, including six under review for approval.
While no drugmaker has a 100% success rate or anywhere close to that, Pfizer's pipeline is more than good enough to transform its lineup in the next five years. In the meantime, the company's results will stabilize as the need for COVID-19 vaccines and medicines becomes more predictable. I predict Pfizer's revenue and earnings will eventually start moving in the right direction, as will its share price. In fact, Pfizer's revenue grew in the second quarter, the first time it had in a while.
Pfizer hasn't fully recovered yet, not by a long shot. But it'd be a good idea to purchase the company's shares before it does.
