Santa Claus will soon be on his way delivering gifts to children all over the world. But could the fun gift giver bring something to investors too? As it is called “Santa Claus rallies” it may happen towards the end of the year.
Three Motley Fool contributors think they've identified some great stocks that could be well-positioned to benefit from the Santa Claus rally. This is why they chose AbbVie(NYSE: ABBV), Novo Nordisk(NYSE: NVO)a Vertex Pharmaceuticals(NASDAQ: VRTX).
David Jagielski(AbbVie): Heading into the end of the year, one growth stock that could be due for a rally is AbbVie. The drugmaker has a lot of long-term potential and may be one of the best stocks to buy as the year comes to a close. The stock has had a tepid year as its shares are up just 11% (as of Monday's close), which is worse compared to the S&P 500a more impressive 27% rally so far.
Investors have been bearish on the stock after the company announced that its schizophrenia drug, emraclidine, failed to meet its primary endpoint in phase 2 trials, prompting a sell-off in 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 primary and secondary endpoints in a phase 3 trial for the treatment of early Parkinson's disease. 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 gave approval to Vyalev, a treatment for advanced Parkinson's disease.
Not every drug in AbbVie's pipeline is going to be a success. But this is still a solid growth stock to own and investors seem to be too bearish on a disappointing trial result for emraclidine. With more than 90 compounds in the works, there will be good and bad results along the way.
There is good value here for investors willing to be patient. Trading at just 15 times next year's estimated forward earnings (based on analyst estimates), it may be a matter of time before AbbVie's stock starts to rebound.
Prosper Junior Bakiny(Novo Nordisk): A year-end stock market rally can be caused by various factors, including optimism about the year ahead. It's hard to predict which companies – if any – will benefit from it in 2025, but Novo Nordisk is a good choice for several reasons. Let's consider two. First, despite performing well in the first half of the year, the drugmaker has struggled since then. In the last six months, Novo Nordisk shares have fallen by 24%.
That's despite the company reporting strong revenue and earnings growth thanks to its diabetes and obesity medicines. Arguably the market is undervaluing Novo Nordisk. Second, the company could make significant clinical progress next year. Novo Nordisk has several late stage programs in development. Maybe it will release data for CagriSemaan investigational weight loss medication 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 the treatment of patients with Alzheimer's disease and steatohepatitis associated with metabolic dysfunction, two areas of high unmet need. 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 is not, the drugmaker remains one of the best choices in the industry. Novo Nordisk is an innovative company that consistently produces strong financial results and has a deep and exciting flow.
Santa Rally or not, the company is worth investing in for the long term.
Keith Speights (Vertex Pharmaceuticals): Shares of Vertex Pharmaceuticals plunged Thursday after the company announced the results of a phase 2 clinical study evaluating suzetrigine in the treatment of painful lumbosacral radiculopathy (LSR), a form of sciatica. However, I think a year-end bounce is likely.
For one thing, the sell-off was overdone, in my opinion. Investors were concerned that suzetrigine did not 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 reducing pain on the numerical pain rating scale (NPRS). Vertex plans to talk to regulators about advancing suzetrigine into late-stage testing for LSR.
It is not unusual for the placebo response to be unexpectedly high in clinical trials for pain drugs. Post-hoc Vertex analyzes suggested that a different trial design might better manage this issue in phase 3 trials.
The bigger story for Vertex is that it is awaiting not just one but two US Food and Drug Administration (FDA) approval decisions over the next few weeks. The FDA is scheduled to announce its decision on approval of the triple-drug combination vanzacaftor in the treatment of cystic fibrosis by January 2, 2025. The agency set a PDUFA date of January 30, 2025, for its decision on swetrigin in the treatment of acute pain . . (By the way, the late-stage results of the drug in this indication looked great with no yellow flags.)
I expect a thumbs up from the FDA for both drugs. I also predict that the vanzacaftor and suzetrigine triple will become huge commercial successes for Vertex. Santa Claus could easily bring a rally for this biotech stock.
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David Jagielski does not have a position in any of the stocks mentioned. Keith Speights holds positions at AbbVie and Vertex Pharmaceuticals. Prosper Junior Bakiny has positions at Vertex Pharmaceuticals. The Motley Fool has and recommends positions in AbbVie and Vertex Pharmaceuticals. The Motley Fool recommends Novo Nordisk. The Motley Fool has a disclosure policy.
