These two 'hidden gems' in health care are set to rally, Jefferies says
Health care stocks are off to a strong start for 2024, and Jefferies thinks some of the lesser-known names in the space could outperform as the Federal Reserve cuts rates. The S & P 500 health care sector is on pace for its best year since 2021, gaining more than 6%. Eli Lilly and DaVita have driven most of the gains soaring more than 30% each. However, Jefferies sees opportunities outside of the leading health care names and highlighted some small- and mid-cap names that it posits can gain anywhere from 30% to 45%. .GSPHC YTD mountain The S & P 500 health care sector has gained roughly 6.4% from the start of the year. The firm screened for "hidden gems" that are little followed by both the broader market and analysts, with fewer than 15 covering the companies that made the list. Jefferies thinks the this corner of the health care sector is on track to outperform this year — already outpacing the Russell 2000 from the start of the year. "The ideas are down cap, supported by strong growth theses and offer a value dynamic as well," Jefferies' equity research team wrote on Monday. The sector has also benefited from record levels of mergers and acquisitions in 2024 and typically performs well in the event of interest rate cuts from the Fed, according to equity strategist Steven DeSanctis. Wall Street is currently pricing in three rate cuts by the end of the year. Jefferies picked the stocks based on how well they screen in terms of growth at a reasonable price (GARP). Here are two names that made the list. Pharmaceutical firm Incyte made the Jefferies cut. Shares have dipped 7% this year. The firm maintains an $81 per share price target on Incyte, amounting to roughly 38% upside moving forward from Monday's close. INCY YTD mountain Incyte Corp. stock. Jefferies analyst Kelly Shi thinks that while Incyte's revenue from its premier chemotherapy drug Jakafi will potentially suffer a $2.6 billion hole due to loss of exclusivity, the company's foray into dermatology can make up for the gap and improve revenue stream better than currently forecast. The analyst also points to potential regulatory approval of topical eczema treatment Opzelura for use of other conditions such as mild-moderate hidradenitis suppurativa and prurigo nodularis, which she forecasts is a $1 billion market. Staar Surgical is also on Jefferies' radar. The firms $50 per share price target represents 31% upside from Monday's close. Shares have climbed 24% this year. The company specializes in the manufacturing of implantable collamer lenses for use in refractive eye surgery to lower dependency on glasses. STAA YTD mountain Star Surgical stock. Analyst Young Li thinks the company is the best long-term solution for treatment of myopia compared to current "refractive surgical solutions." She also notes that the company's 2024 full-year guidance leaves room for investor upside. "Mgmt. expects ~10% growth in the US and China with at least breakeven operating margin in '24," the note said. "For reference, the refractive market growth has been flat, with STAA outgrowing the market by 25% in the past few years."