George Soros Bought These 2 Healthcare Stocks in the Third Quarter
Although billionaire superinvestor George Soros may no longer be running the day-to-day operations of his namesake fund "Soros Fund Management," the fund's quarterly activity remains a hotbed of interest among investors and for good reason. Until only a few years ago, after all, the Soros Fund Management was the most successful hedge fund in the business.
So what has the Soros Fund been buying lately? During the course of the third quarter, the recently filed 13Fs with the Securities and Exchange Commission reveal that the fund boosted its already-sizable stake in the pharmacy benefits manager Express Scripts Holding Co. (NASDAQ: ESRX) and it opened a smallish position in the Chinese cancer company Zai Lab Limited (NASDAQ: ZLAB). Are these two healthcare stocks suitable investments for the retail crowd as well? Let's take a deeper look to find out.
One of healthcare's best bargains
At about 10 times expected earnings and a price-to-sales ratio of 0.51, pharmacy benefits giant Express Scripts is one of the cheapest stocks in all of healthcare. And that rock-bottom valuation comes in spite of the company's healthy 35% appreciation since the start of 2018.
What's been weighing on Express Scripts' valuation for the better part of the last two years? The fly in the ointment, so to speak, has long been the concern that Trump's plan to reform drug prices in the U.S. would put middlemen like Express Scripts in an unfavorable position going forward.
However, that overarching fear has started to dissipate of late, thanks to new proposals by the administration that would include pharmacy benefits managers in the drug pricing process for Medicare Part D recipients -- instead of excluding them in an effort to "cut the fat".
Is this change of heart by the Trump administration a buying signal? Unfortunately, investors that missed the boat on this value stock are probably out of luck. Last March, Express agreed to a $54 billion buyout from Cigna in a cash heavy deal, sparking the company's double-digit rally this year.
The bottom line here is that there arguably isn't enough upside remaining in Express' shares to justify buying in at these levels -- especially since there's the very real risk -- albeit minimal -- that this deal could get stonewalled by regulators. In that black swan-type event, Express' stock would probably give up most, if not all, of its gains this year.
A path to China
China's surging economy over the past two decades has transformed it into a highly prized foreign market for American and European drugmakers. And Zai Lab, a Shanghai-based biopharma, has clearly capitalized on this interest among Western pharma companies by striking in-licensing deals for Tesaro's (NASDAQ: TSRO) ovarian cancer medicine Zejula (niraparib), NovoCure's brain cancer drug Optune, among others.
By doing so, the company has outlined a far less risky path toward becoming a commercial-stage operation for its shareholders. Eventually, though, Zai Lab's ultimate plan is to build out its own unique research and development platform in the areas of oncology and autoimmune disorders.
The good news is that Zai Lab's strategy appears to be paying off. Last October, the company announced the approval of Zejula in Hong Kong, paving the way for the drug's commercial launch in the Chinese territory in the fourth quarter of this year. Later on, Zai Lab hopes to expand the drug's launch to include mainland China.
Is Zai Lab's transition from a developmental to a commercial-stage biotech a buying opportunity? Unfortunately, the answer isn't altogether clear. Tesaro's Zejula hasn't exactly gotten off to a blistering start in other territories where its currently approved and the drug probably won't command a premium pricing structure in China. So, it's next to impossible to realistically estimate Zejula's commercial opportunity in China at this rather early stage of the game.
So while this speculative biotech could turn out to be a tremendous bargain, the lack of clarity regarding the company's near-term growth outlook implies that its stock is probably only suited for ultra-aggressive investors.
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George Budwell has no position in any of the stocks mentioned. The Motley Fool recommends 1300SMILES Limited. The Motley Fool has a disclosure policy.