Despite some turbulence, growth stocks have been on a bull run since the 2008 financial crisis. Groundbreaking innovations in technology and healthcare have been the primary drivers behind this trend.
Which growth stocks stand out as top buys right now? Healthcare companies Catalyst Pharmaceuticals(NASDAQ: CPRX) and Novavax(NASDAQ: NVAX) represent high-risk, high-reward equities that could be compelling bargains for long-term investors.
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Here is a brief outline of the most important elements of their respective investing theses.
Why buy Catalyst Pharmaceuticals stock?
Catalyst Pharmaceuticals sports a compelling investing thesis based on several strategic factors. The company's focus on rare diseases, such as targeting Lambert Eaton myasthenic syndrome with its product Firdapse, taps into a market that often allows for premium pricing due to the lack of competition and the specialized nature of the treatments.
The strong patent portfolio that protects Firdapse until potentially 2037 also provides a significant period of market exclusivity, which is a substantial advantage in the pharmaceutical industry. Additionally, Catalyst's expansion into the Duchenne muscular dystrophy market with Agamree and the epilepsy market with Fycompa demonstrates a strategic diversification of its rare disease portfolio.
The current market valuation of Catalyst, trading at under 3 times estimated 2026 sales, suggests the stock is significantly undervalued, especially considering the sky-high premiums for orphan drug manufacturers throughout history. Orphan drug specialists have historically garnered premiums of over 15 times forward sales.
This latent undervaluation, coupled with the potential for a marketwide sentiment shift when interest rates flip, could result in a significant upside for investors. Wall Street analysts estimate the stock might be undervalued by as much as 69% based on the prevailing 12-month consensus price target.
Analysts' price targets should never be used as a singular reason to buy or sell a stock. But in this case, Wall Street's take does seem to have merit.
Novavax: Call it a comeback
Last Friday, Novavax announced a co-exclusive licensing agreement with French drugmaker Sanofi(NASDAQ: SNY) for its stand-alone adjuvanted COVID-19 vaccine. As part of the deal, the vaccine company booked $500 million in up-front cash and an equity investment of around $70 million from Sanofi. Novavax's stock has nearly quadrupled in value since announcing this deal. Before the deal, the biotech's shares were down by 53% over the past 12 months.
Why is this deal transformative? With a cash runway of no less than a year and a half, Novavax has the capital to advance its COVID-influenza combination vaccine into a pivotal stage trial. The biotech is guiding for a potential launch in 2026. The flu vaccine market alone is scaling to hit $22 billion in sales by 2032, showcasing the enormous opportunity in front of the company.
What's the bottom line? Novavax isn't out of the woods yet. Its pipeline is thin, and so is its margin for error. But with Sanofi in the picture as an equity partner, Novavax should be able to get to its next major value driver, potentially setting up its shares for another bull run. That said, this is a high-risk biotech growth stock, meaning investors ought to carefully weigh their appetite for significant losses if a clinical or regulatory setback occurs.
Should you invest $1,000 in Catalyst Pharmaceuticals right now?
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George Budwell has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
