Santa Claus will soon be on his way delivering presents to kids around the world. But could the jolly gift-giver bring something for investors, too? So-called “Santa Claus rallies” can occur near the end of the year.
Three Motley Fool contributors think they’ve identified fantastic stocks that could be in a good position to benefit from a Santa Claus rally. Here’s why they chose AbbVie(NYSE: ABBV), Novo Nordisk(NYSE: NVO), and Vertex Pharmaceuticals(NASDAQ: VRTX).
David Jagielski(AbbVie): Heading into the tail end of the year, one growth stock which may be due for a rally is AbbVie. The drugmaker has loads of long-term potential and may be one of the better stocks to buy as the year draws to a close. The stock has had a lukewarm year as its shares are up just 11% (as of Monday’s close), which pales in comparison to the S&P 500‘s more impressive 27% rally thus far.
Investors have been bearish on the stock after the company announced its schizophrenia drug, emraclidine, failed to meet its primary endpoint in phase 2 trials, prompting a sell-off of the stock in November.
But that could create a great opportunity to buy the stock at a discount right now, especially after it reported some encouraging news from a different trial. Earlier this month, the company announced positive results for tavapadon, which met both primary and secondary endpoints in a phase 3 trial for treating early Parkinson’s. The company is going to submit a new drug application next year, which could lead to yet another approval related to the disease. In October, regulators granted approval for Vyalev, a treatment for advanced Parkinson’s disease.
Not every drug that is in AbbVie’s pipeline is going to be a success. But this is still a solid growth stock to own and investors appear to be overly bearish on a disappointing trial result for emraclidine. With more than 90 compounds in its pipeline, there are going to be good and bad results along the way.
There’s good value here for investors who are willing to be patient. Trading at just 15 times next year’s estimated future earnings (based on analyst estimates), it may just be a matter of time before AbbVie’s stock starts to get going again.
Prosper Junior Bakiny(Novo Nordisk): Various factors can cause an end-of-the-year stock market rally, including optimism about the coming year. It’s hard to predict which companies — if any — will benefit from it going into 2025, but Novo Nordisk is a good pick for several reasons. Let’s consider two. First, though it performed well in the first half of the year, the drugmaker has struggled ever since. In the past six months, Novo Nordisk’s shares are down by 24%.
That’s despite the company reporting strong revenue and earnings growth thanks to its diabetes and obesity medicines. The market is arguably undervaluing Novo Nordisk. Second, the company could make significant clinical progress next year. Novo Nordisk has several late-stage programs in development. Perhaps it will release data for CagriSema, an investigational weight loss medicine that could generate $20 billion by 2030, according to some estimates.
Novo Nordisk could also post results for semaglutide, the active ingredient in Wegovy and Ozempic, in treating patients with Alzheimer’s disease and metabolic dysfunction-associated steatohepatitis, two areas with high unmet needs. Novo Nordisk’s relatively poor performance since June and the potential catalysts it could experience in 2025 could lead to a Santa Claus rally for the stock. However, even if it doesn’t, the drugmaker remains one of the better picks in the industry. Novo Nordisk is an innovative company that consistently generates strong financial results and has a deep and exciting pipeline.
Santa Claus rally or not, the company is worth investing in for the long haul.
Keith Speights (Vertex Pharmaceuticals): Shares of Vertex Pharmaceuticals plunged on Thursday after the company announced results from a phase 2 clinical study evaluating suzetrigine in treating painful lumbosacral radiculopathy (LSR), a type of sciatica. However, I think an end-of-year rebound is likely.
For one thing, the sell-off was overdone, in my view. Investors were worried that suzetrigine didn’t perform statistically better than placebo in the phase 2 study. Importantly, though, the non-opioid pain drug still met the study’s primary endpoint of reduction in pain on the numeric pain rating scale (NPRS). Vertex plans to talk with regulators about advancing suzetrigine into late-stage testing for LSR.
It’s not unusual for placebo response to be unexpectedly high in clinical trials for pain drugs. Vertex’s post-hoc analyses suggested that a different trial design could better control this issue in phase 3 testing.
The bigger story for Vertex is that it awaits not just one but two U.S. Food and Drug Administration (FDA) approval decisions over the next few weeks. The FDA is scheduled to announce its decision on approval of the vanzacaftor triple-drug combination in treating cystic fibrosis by Jan. 2, 2025. The agency set a PDUFA date of Jan. 30, 2025, for its decision on suzetrigine in treating acute pain. (By the way, the drug’s late-stage results in this indication looked great with no yellow flags.)
I expect thumbs-ups from the FDA for both drugs. I also predict that the vanzacaftor triple and suzetrigine will become huge commercial successes for Vertex. Santa could easily bring a rally for this biotech stock.
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David Jagielski has no position in any of the stocks mentioned. Keith Speights has positions in AbbVie and Vertex Pharmaceuticals. Prosper Junior Bakiny has positions in Vertex Pharmaceuticals. The Motley Fool has positions in and recommends AbbVie and Vertex Pharmaceuticals. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
