The outlook of many healthcare stocks is quite positive at this point. That’s partly because many large investors have shunned the sector, since they believe that it is destined to produce horrible returns as long as interest rates remain elevated.
As a result, many firms in the space have very attractive valuations. Moreover, even some expensive names, such as the leading companies in the diabetes sector and many makers of weight loss drugs, should perform well in the long run because the demand for their products will continue to grow rapidly.
However, the large drug-store chains are being hit with many challenges. These include the huge settlements that they have to pay as a result of their role in the opioid epidemic, growing competition and the increased theft with which they have to contend in many areas of America.
And as is always the case, some drug makers’ products are likely to fail over the longer term due to safety or efficacy issues. As a result, these companies’ stocks have the potential to perform poorly over the long term.
These three healthcare stocks to sell in July all fit into one of those categories.
Walgreens Boots Alliance (WBA)
Walgreens (NASDAQ:WBA) is facing a plethora of problems. According to Bank of America, pharmacy benefit managers, the “middlemen” between drug makers and retailers, have been squeezing Walgreens’ margins.
Walgreens has also been hit by tough competition from the large retail chains such as Walmart (NYSE:WMT) and Target (NYSE:TGT), along with increased utilization of direct mail prescription-filling services by consumers. Partly as a result of all of these factors, the company’s adjusted earnings per share sank to 63 cents last quarter, down from 99 cents during the same period a year earlier.
But Walgreens is facing additional significant problems. The chain has acknowledged that its financial results have been hurt by increased shoplifting in some areas of the U.S. Moreover, inflation has made consumers less likely to pay the generally high prices that it charges for many items, compared to many of its competitors.
Also greatly undermining the outlook of WBA stock is the huge settlements that the firm has had to pay out as a result of its role in the opioid crisis. Largely as a result of these settlements, the company had a huge $33.66 billion of debt as of the end of the first quarter, along with only $711 million of cash.
Analysts, on average, expect its earnings per share to sink to $2.79 in 2025 from $3.98 in 2023.
Cassava (SAVA)
On June 28, CUNY School of Medicine Professor Hoau-Yan Wang was indicted by a grand jury for allegedly falsifying data related to Cassava’s (NASDAQ:SAVA) only major drug candidate, simufilam. The company is hoping that simufilam, which is currently undergoing Phase 3 trials, will become a treatment for Alzheimer’s.
But Wang collaborated for many years with Cassava, and much of his research provided evidence that enabled simufilam to advance to clinical trials. Also importantly, CUNY, which employs Wang, previously found him guilty “of scientific misconduct involving 20 research papers,” many of which were related to simufilam.
If Wang did indeed lie about his research, it’s possible that the information on the drug’s efficacy and mechanism of action which the firm provided to the Food and Drug Administration is inaccurate. The FDA may have therefore approved clinical trials based on faulty information, and the agency could choose to halt the Phase 3 trial while it investigates the matter. If the agency does take that action, SAVA stock will almost certainly plunge much further.
Moreover, given reporting from October 2023 that connects Chief Scientist Lindsay Burns to Wang, I believe that the FDA will be scrutinizing Cassava. Regulators will want to ensure that the company was not involved in knowingly submitting falsified data
If the FDA fails to harshly punish a company that knowingly submitted false data, many other biotech companies will follow suit in order to boost their stock prices and takeover prospects. This could create chaos in the sector and cause it to become toxic for investors. As a result, the agency will very likely take action against Cassava.
Finally, those who are still bullish on SAVA stock have emphasized the success of the clinical trials involving simufilam. But the company has been credibly accused of manipulating those trials.
Given all of these points, Cassava is one of the best healthcare stocks to sell or short.
Moderna (MRNA)
The revenue that Moderna (NASDAQ:MRNA) generated from its Covid-19 vaccine plunged by a huge two-thirds last year to $6.7 billion. CNBC noted that the decline occurred “as cases and public concern about the virus dwindled from their pandemic peaks.” As a result, the shot is unlikely to be a growth engine for the company.
And although the company reported that the efficacy of its RSV vaccine “against two or more… symptoms” caused by the virus comes in at a respectable 50% after 18 months, its results are less impressive than those of the RSV vaccine developed by market leader GSK (NYSE:GSK). Plus, GSK’s shot was approved a year before Moderna’s, giving GSK another big advantage over Moderna in the RSV vaccine battle.
Analysts, on average, expect the company’s revenue to sink to $3.85 billion this year from $6.85 billion in 2023.
On the date of publication, Larry Ramer held a short position in SAVA. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
On the date of publication, the responsible editor did not have (either directly or indirectly) any positions in the securities mentioned in this article.