Two Biotech Stocks to Buy With an Eye on 2025
These small-cap names could see a tailwind once tax-loss selling abates.
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It is hard to believe we are already on the brink of Halloween and the election is almost upon us. 2024 has flown by, and the market has provided another year of bountiful, but notably top-heavy returns for investors. I remain concerned about the overall market as well as the economy.
While U.S. economic growth is running at a level of just over 3% over the second and third quarters of this year, anomalies are glaring. Among these are same-store traffic at restaurants falling over 3% on a year-over-year basis in the most recent monthly reading. Manufacturing also has been consistently in contractionary territory for most of the past two years and housing affordability remains near historical lows.
None of these readings scream 3% GDP growth. Of course, when the federal government ran up $1.8 trillion in fiscal deficit spending with its recently concluded its fiscal 2024 year, myriad economic distortions should be expected.
Despite my pessimistic view on the economy and the market, as long as the music is playing, an investor has to continue to look for new opportunities. Today, we are teeing up a couple of solid companies whose stocks have not performed well at all in 2024. However, the shares could get a boost as tax-loss selling ebbs in coming weeks and should have a brighter 2025.
We will start with Dynavax Technologies DVAX, which could be a poster child of companies that have not gotten the credit they deserve for their progress in 2024. The stock also made a list from Morgan Stanley at the beginning of this month of almost 40 stocks that could face tax-loss selling pressure.
DVAX shares are down nearly 25% in 2024. The company’s flagship product, the "best of breed" hepatitis B vaccine Heplisav-B, continues to take market share (now up to 42%) in what should be an over $800 million a year market just in the U.S. by 2027.
Dynavax is also advancing a couple of other candidates in its developmental pipeline. The company has a huge cash hoard as well and is moving towards consistent profitability. The stock should get a bump as year end as tax-loss selling subsides and investors look forward to a brighter and more profitable 2025.
Rocket Pharmaceuticals RCKT is another name that I think has been unfairly punished in 2024, with the stock down a bit over 40% on the year. The main trigger for the decline was the FDA's rejection of the company's biologics license application, or BLA, for its candidate Kresladi.
Kresladi is a gene therapy to treat individuals with severe rare immune disease called leukocyte adhesion deficiency-I or LAD-I. However, the application wasn’t rejected because of trial data Kresladi generated but related to manufacturing or controls —basically, dotting the I’s and crossing the T’s within the application to the FDA. This is something that happens far too often with small companies submitting their first marketing applications with the government agency. I expect this to be rectified in the coming months resulting in FDA approval for Kresladi.
Rocket also recently announced that it has now enrolled all patients in a pivotal trial for another candidate called RP-A501, which is targeting Danon disease, a rare cardiovascular condition. This sets up 2025 as a year Rocket delivers better news and performance for its shareholders.
At the time of publication, Jensen was long DVAX and RCKT.
